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V).  | o 


COMMERCE 

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ROOM 


THE 

LIBRARY  OF  BUSINESS 
PRACTICE 


VOLUME  X 


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in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


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THE 

LIBRARY  OF  BUSINESS 
PRACTICE 

VOLUME  X 

COSTS  AND  STATISTICS 


A.  W.  SHAW  COMPANY 

CHICAGO  NEW  YORK 


LONDON 


THE 

LIBRARY  OF  BUSINESS 
PRACTICE 

(Trademark  Registered) 


Copyright,  1914,  by 
A.  W.  Shaw  Company 

Copyright,  Canada  1914,  by 
A.  W.  Shaw  Company 

Entered  at  Stationers’  Hall,  London 
A.  W.  Shaw  Company,  Ltd. 


65^ 
LQ  1 
U.  1 0 


COSTS  AND  STATISTICS 

I— PLANNING  YOUR  COST  SYSTEM 


Editorial  by  John  S.  Lawrence  . • . • . 

I  Finding  the  Cost  Facts  in  Your  Business  . 
By  Neil  M.  Clark 

II  Making  Workmen  Partners  in  Cost  Cutting 
By  Vernon  Hoxie, 

Vice-President,  Peerless  Wire  Fence  Company 

III  Where  to  Save  in  Cost  Keeping  . • . 

By  N.  P.  Pritchard 

IV  Managing  a Cost  System  • . . . 

By  J.  M.  Butler 

V Keeping  Tab  on  Expense  . . • . 

By  Daniel  V.  Casey 


7 

9 

21 

31 

42 

51 


II— FINDING  AND  RECORDING  COSTS 


Editorial  by  F.  N.  Doubleday  63 

VI  Assembling  Costs  in  a Small  Shop  ...  65 

By  A.  B.  Campbell,  Jr., 

Assistant  Superintendent,  Duval  Planing  Mill  Company 
VII  How  to  Find  What  Small  Parts  Cost  . . 75 

By  J.  Earle  Riley 

VIII  Keeping  Labor  Records  by  Machinery  . . 85 

By  W.  B.  Jadden, 

District  Sales  Manager,  Felt  and  Tarrant  Manufacturing 
Company 

IX  How  to  Apportion  “Overhead”  ....  92 

By  Sterling  H.  Bunnell 

X Designing  Your  Cost  Forms 98 

By  Sumner  B.  Rogers, 

Production  Manager,  Sangamo  Electric  Company 


III— COST  SYSTEMS  THAT  PROVED 
EFFECTIVE 


Editorial  by  A.  M.  Glossbrenner  ••••••  105 

XI  How  to  Get  Office  Costs  • . . . 107 

By  Marshall  D.  Wilber, 

President,  Wilber  Mercantile  Agency 


6 


CONTENTS 


XII  Finding  the  Cost  to  Sell  • • • . » 

By  Percival  Richards 

XIII  Planning  a Retail  Store  Expense  Sheet  . 

By  E.  J.  Bliss, 

Managing  Director,  Regal  Shoe  Company 

XIV  Records  That  Safeguard  Printing  Estimates  • 

By  Neil  M.  Clark 

XV  Costs  in  a Professional  Office  . • • # 

By  O.  M.  Biggar 

XVI  How  a Banker  Figured  His  Costs 
By  Harry  N.  Grut 


114 

120 

126 

132 

141 


IV— USING  GRAPHS  AND  STATISTICS 
IN  BUSINESS 


Editorial  by  A.  D.  Brown  • • • • • 

XVII  Behind  the  Figures  , 

By  A.  E.  Andersen 

XVIII  Graphs  That  Guide  Your  Business 
By  Kendall  Banning 

XIX  How  to  Control  Expense  Items  . 

By  Edward  L.  Wedeles 
Treasurer,  Steele  Wedeles  Company 

XX  Making  Clerical  Work  Automatic  • 

By  Henry  M.  Wood, 

Of  the  Lodge  & Shipley  Machine  Tool  Company 


151 

153 

170 

181 

192 


SPECIAL  ILLUSTRATIONS 


I 

cost  functions  . 

« 

• 

• 

11 

II 

WHAT  MAKES  UP  SELLING  PRICE  . 

• 

• 

• 

• 

19 

III 

HOW  THE  ORDER  BOARD  OPERATES 

• 

• 

• 

• 

67 

IV 

HOW  COSTS  ARE  GATHERED  . 

• 

• 

• 

• 

71 

V 

EIGHT  STANDARD  METHODS  OF  CHARGING  “ 

overhead” 

• 

95 

VI 

GETTING  THE  ESSENTIALS  IN  A FACTORY 

FORM 

• 

101 

VII 

CHARTING  A SLUMP  IN  SALES 

. 

• 

• 

• 

155 

VIII 

SHOWING  UP  EXPENSES  AND  PROFITS 

• 

• 

• 

• 

157 

IX 

KEEPING  TAB  ON  MACHINE  REPAIRS 

• 

• 

• 

• 

159 

X 

MINIMIZING  UNUSUAL  EXPENSES  . 

• 

. 

• 

• 

165 

XI 

INVENTORY  AND  “PAST  DUE’  FLUCTUATIONS 

• 

167 

XII 

ACTUAL  AND  “STANDARD”  COST  COMPARISONS 

• 

• 

172 

XIII 

GRAPHS  THAT  PICTURE  PRODUCTION 

• 

• 

• 

• 

173 

XIV 

DEPARTMENT  PROFITS  PER  WAGE  DOLLAR 

• 

• 

• 

174 

XV 

CATCHING  LEAKS  AT  THE  WEEK-END 

• 

• 

# 

• 

175 

XVI 

PICTURING  STATION  COSTS 

• 

• 

• 

• 

178 

XVII 

MAKING  COST  FLUCTUATIONS  GRAPHIC 

• 

• 

• 

• 

179 

XVIII 

HOW  THE  EXECUTIVE  CONTROLS  EXPENSE 

• 

• 

184 

PART  I— PLANNING 
YOUR  COST  SYSTEM 


Take  Your  Problem  to  Pieces 


out  the  facts  of  a case  and  the  conclu- 


sions are  usually  self-evident. 

Many  failures  are  caused  by  lack  of  thorough 
analysis  because  those  responsible  are  “too  busy” 
to  investigate. 

Practically  every  subject  can  be  dissected  and 
analyzed. 

In  this  way  errors  and  waste  are  reduced 
and  economic  saving  made  and  differences  of 
opinion  avoided. 

Analyze  your  own  problems;  if  the  subject  can 
afford  the  outlay,  have  a special  department  for 
this  purpose. 

Cultivate  a conscious,  reasoning  analysis  of 
your  own  work.  It  is  easily  acquired  and  its 
persistent  application  rapidly  develops  its  use- 
fulness. 


JOHN  S.  LAWRENCE 

Of  Lawrence  & Company 


I 


FINDING  THE  COST  FACTS 
IN  YOUR  BUSINESS 

By  Neil  M.  Clark 


1 BELIEVE  we  can  make  that  sheet  iron  pipe  our- 
selves cheaper  than  we  can  get  it  outside,  ” said  the 
foreman  of  a sheet  metal  shop  making  a special  line  of 
work. 

It  was  the  dull  season  of  the  year,  and  the  manager 
told  him  to  go  ahead  on  an  order  that  was  just  ready 
to  go  to  another  concern.  They  made  it  a test  lot.  The 
shop  had  a thorough  cost  system,  and  every  item  of  ex- 
pense entering  into  the  manufacture  was  carefully 
recorded.  When  the  foreman  came  to  discuss  final  re- 
sults with  the  manager,  they  found  that  the  total  cost  of 
the  home-made  product  was  a fraction  less  than  what 
they  had  been  paying  outside. 

“It's  up  to  you,”  said  the  manager.  “You  can  have 
all  future  orders.  And  see  how  much  you  can  beat  this 
first  record.” 

The  foreman  appreciated  the  system  which  made  it 
possible  for  him  to  know  his  costs,  and  so  keep  his  men 
busy  in  a season  ordinarily  slack,  at  the  same  time  serv- 
ing the  firm  by  affording  them  a considerable  economy  in 
materials.  This  is  only  one  of  numerous  economies  ar- 
rived at  in  this  shop  by  the  use  of  an  effective  cost  sys- 
tem. 

A good  cost  system  is  a telescope  which  brings  every 


10 


PLANNING  TO  KNOW  COSTS 


activity  of  your  business  to  a sharp  focus,  and  makes 
the  abnormal  items,  wastes  and  mistakes,  stand  out  in  re- 
lief to  catch  your  eye.  It  keeps  a record  of  raw  ma- 
terial ; it  keeps  track  of  men — the  work  they  do  and  the 
work  they  ought  to  do;  it  tells  the  condition  of  every 
article  and  job  in  the  factory ; it  automatically  points  out 
where  wastes  are  occurring  and  what  you  must  do  to 
stop  them.  A real  cost  system  explains  past  results,  and 
forms  a guide  for  the  future  conduct  of  your  business, 
furnishing  a basis  on  which  to  make  prices,  or  cut  them 
intelligently  to  meet  competition.  You  have  this  in- 
formation at  once,  when  the  leaks  are  commencing;  not 
months  afterwards,  when  they  have  had  time  to  grow 
large  and  drain  off  your  profits. 

A cost  system  does  these  positive  things ; it  also  gives 
indirect  results.  The  purchasing  agent  has  a check  on 
his  material  and  a system  which  brings  to  light  the  true 
and  false  economies  of  his  purchases.  The  employees  all 
down  the  line  are  constantly  on  the  watch  to  stop  leaks, 
because  they  know  the  results  of  their  work  are  the  basis 
of  daily  and  monthly  comparisons  in  your  office.  The 
salesman  on  the  road  knows  which  of  the  lines  in  his 
sample  case  bring  a big  profit,  and  which  sell  at  a small 
margin.  Instead  of  working  in  haphazard  fashion,  every 
member  of  the  organization  from  your  desk  to  the  day 
laborer  is  working  on  an  assured  basis  of  facts. 

Your  selling  price,  by  which  the  buying  public  largely 
measures  you,  is  made  up  of  the  three  big  elements: 
Factory  Cost,  Selling  Cost  and  Profit.  An  undertaking 
may  be  very  efficiently  organized  in  the  making  or  selling 
end,  and  yet  not  prove  a success,  because  gains  in  one 
department  are  offset  by  losses  in  another.  It  is,  there- 
fore, essential  to  know  what  your  office  helpers  and 
salesmen  are  costing  you,  and  clip  down  wastes  in  the 


WHAT  FACTS  TO  GET 


11 


distributing  organization,  as  well  as  to  know  precisely 
what  you  are  paying  for  labor,  power  or  material  in  the 
factory  itself. 

The  ideal  of  cost  keeping  is  to  connect  all  classes  of 
expenditure  with  the  items  on  which  they  are  incident. 
Even  the  smallest  plant,  however,  finds  it  impossible  to 


ELEMENTS  OF 
FACTORY  COST 


RAW  MATERIAL 


I OVERHEAD 


STOCK  ROOM 


SYSTEM  OF 
GETTING  COSTS 


ANALYSIS 

°F  J 
GENERAL  \ 
FEATURES  OF 
COST  SYSTEM 


CLASSIFIED 

STANDINGORDERS^ 


STOCK  RECORD9 
STOCK  REQUISITION 
PAYROLL  SHEETS 
TIME  CARDS 
/ A WORK.QRDER 


SYSTEM 


\ INDIVIDUAL 

PIECE  COSTS 


COST 

DISTRIBUTION 


USE  OF  COSTS  < 


CLASS  COSTS 
ASSEMBLED  COSTS 
UNIT  COSTS 

BASIS  OF  SELLING 
LABOR  ANALYSIS 
OPERATING!  EXPENSE 
MATERIAL  COSTS 
JOB  COSTS 


FlGUR&'mjTkis  chart  outlines  the  essential  features  of  any  cost  system , 
giving  the  relation  between  the  items  which  enter  into  the  cost  of  manufacture 
and  showing  the  specific  means  by  which  facts  are  collected 


trace  every  expenditure  to  its  exact  source,  to  determine 
which  job  shall  carry  the  burden  of  the  cigar  given  by 
the  superintendent  to  a prospective  customer.  And  even 
if  it  were  possible,  the  time  and  pains  spent  would  not  be 
repaid.  It  is  easy  to  go  too  much  into  details  in  getting 


12 


PLANNING  TO  KNOW  COSTS 


costs  when  once  you  become  fascinated  with  the  idea  of 
allocating  every  expenditure. 

Common  sense  rules  the  installation  of  a cost  system 
as  much  as  anything  else.  Make  the  system  fit  your  busi- 
ness. Do  not  stop  every  other  leak  and  ruin  yourself 
collecting  top-heavy  cost  statistics.  Ask,  first  of  all, 
what  facts  you  need  to  know ; and  then  devise  a system 
that  will  get  those  facts  for  you  in  the  best  and  simplest 
fora?i  possible. 

MATERIAL  and  direct  labor  charges  are  cost  ele- 
ments •which  can  be  apportioned  accurately  to  the 
job  or  specific  work  on  which  they  are  incident. 

Two  factors  of  the  cost  of  a finished  article  can,  with 
a high  degree  of  accuracy,  be  charged  to  the  job  causing 
them.  These  factors  are  direct  labor  and  material. 
Taken  together  they  are  commonly  known  as  Prime  Cost. 
The  items  which  can  not  be  charged  to  specific  jobs  com- 
prise power,  heat,  light  and  rent,  taxes,  insurance,  de- 
preciation, interest  on  investment,  repairs  or  upkeep,  in- 
direct labor,  miscellaneous  items,  and  the  proportion  of 
office  expense  allotted  to  the  factory.  These  items  are 
variously  known  as  burden,  overhead,  or  running  ex- 
penses. 

Material  is  the  first  important  element  in  the  order  of 
manufacture.  If  a mechanic  came  into  your  factory 
office  and  asked  for  seventy-five  cents,  you  would  de- 
mand a detailed  explanation  of  his  reasons,  and  record 
the  amount  on  your  books  with  religious  care.  Do  you 
exercise  the  same  care  when  he  goes  to  the  stock  room 
and  demands  material  ? 

In  cost  terms,  material  includes  only  that  which  be- 
comes a physical  part  of  the  finished  product.  A scaffold 
built  to  assist  in  the  construction  of  a machine  is  not 


WHAT  FACTS  TO  GET 


13 


technically  material,  especially  if  the  planks  and  spikes 
can  be  used  for  succeeding  jobs.  Wastes  and  petty  thefts 
of  material  are  very  liable  to  occur,  but  a little  care  in 
devising  a satisfactory  stock  room  system  serves  to  stop 
the  leaks  and  make  this  item  a definite  charge  against  the 
job  into  which  it  goes. 

The  stock  room  clerk  is  in  charge  of  all  stores  and  you 
should  hold  him  responsible  for  the  proper  handling  of 
them.  The  first  essential  is  a stock  record,  which  may, 
with  advantage,  take  the  form  of  a perpetual  stock  in- 
ventory. Each  kind  of  material  has  its  own  card,  on 
which  the  stockkeeper  enters  the  amounts  as  they  are  re- 
ceived from  time  to  time.  He  issues  material  only  when 
a requisition  properly  filled  out  and  signed  by  a re- 
sponsible party  in  the  department  concerned  (generally 
the  foreman)  is  presented  to  him.  He  records  on  his 
stock  inventory  card  the  amount  issued,  and  makes  the 
charge  to  the  proper  department  and  job. 

Whenever  any  material  is  not  used  on  the  job  for 
which  it  was  originally  intended,  or  is  diverted  to  an- 
other department,  your  system  should  provide  means 
by  which  the  stockkeeper  receives  a record  of  the  fact, 
in  order  that  no  job  may  be  charged  with  more  material 
than  has  actually  entered  into  it.  Waste  can  generally 
be  sold  and  will  bring  in  a small  amount  to  offset  the 
loss. 

Your  chief  ally  in  cutting  down  the  leaks  in  material 
is  the  workman  himself.  Teach  him  to  realize  that  you 
are  constantly  relying  upon  him  and  measuring  his  effi- 
ciency, not  only  by  the  amount  of  work  which  he  turns 
out,  but  also  by  the  percentage  of  wasted  material 
charged  against  him,  and  your  account  with  wasted  ma- 
terial will  rapidly  decrease. 

Direct  labor  is  the  second  element  which  can  be  ac- 


14 


PLANNING  TO  KNOW*  COSTS 


curately  charged  to  the  proper  job.  Time  clocks  record 
the  time  of  the  arrival  and  departure  of  employees  with 
more  fairness  and  accuracy  than  a timekeeper  can  or 
will  attain.  In  addition  to  the  time  clock  it  is  essential 
to  have  a system  of  time  cards  on  which  the  number  of 
hours  spent  by  each  workman  on  each  job  or  class  of 
work  is  recorded.  Checked  against  one  another  and  an- 
alyzed in  the  cost  department,  these  records  furnish  com- 
plete statistics  of  the  time  spent  in  direct  labor  on  a par- 
ticular product.  Eeduce  this  to  terms  of  money,  and  you 
have  the  direct  labor  cost.  If  you  have  established  a 
standard  cost,  you  can  tell  at  a glance  whether  the  work 
was  done  with  more  or  less  than  ordinary  efficiency.  If 
it  compares  poorly  with  former  records,  instant  investi- 
gation should  show  the  reason.  Here  is  one  of  the  places 
where  a good  cost  system  should  prove  its  value  as  a 
check  on  wasteful  expenditures. 

The  costs  of  direct  labor  and  material  are  fairly  easy 
to  ascertain.  But  burden  is  the  crux  of  cost  systems, 
the  rock  on  which  many  of  them  split.  Not  that  it  is 
much  harder  to  find  the  total  amount  of  the  incidental 
factory  expense  than  the  total  of  wages  and  material, 
but  the  difficulty  comes  in  distributing  this  amount 
equitably  over  the  product  when  it  is  found,  so  that 
each  job  shall  bear  its  proper  weight  of  cost. 

Manufacturing  plants  differ  so  widely  that  it  is  im- 
possible to  have  a “one  best  way”  of  burden  distribution 
for  every  trade  and  every  plant.  Conditions  vary  and 
the  peculiar  circumstances  of  your  factory  will  determine 
whether  you  apportion  burden  according  to  the  number 
of  direct  labor  hours  or  according  to  the  amount  of 
wages  paid  for  this  direct  labor;  whether  you  will  fix 
machine  rates  to  be  charged  hourly  against  every  job 
using  the  machines,  or,  finally,  whether  you  decide  on  a 


WHAT  FACTS  TO  GET 


15 


refinement  of  one  or  more  of  these  methods. 

Most  manufacturers  find  either  the  productive  hour 
plan  or  the  percentage  on  wages  plan  detailed  and  yet 
simple  enough  to  meet  their  needs.  The  former  takes 
the  number  of  direct  labor  hours  as  the  basis  of  distri- 
bution ; the  latter,  the  amount  of  direct  labor  wages.  As- 
sume, for  instance,  that  in  a certain  factory  employing 
two  hundred  men,  the  total  number  of  direct  labor  hours 
for  the  month  of  March  is  forty  thousand,  and  the  full 
amount  of  wages  paid  for  this  direct  labor  is  $10,000. 
The  total  burden  for  the  month  amounts  to  $9,000.  Job 
number  thirty-seven  is  the  construction  of  a heavy  ma- 
chine. The  direct  labor  spent  on  it  amounts  to  three 
thousand  hours,  with  a direct  labor  wage  of  $900.  The 
material  entering  into  the  machine  amounts  to  $1,000. 
What,  according  to  the  two  plans  outlined  above,  will 
be  the  total  Factory  Cost  of  the  job  ? 

DISTRIBUTING  overhead  charges  so  that  each  kind 
or  'piece  of  work  bears  its  due  proportion  is  essential 
in  right  cost  accounting — the  four  methods. 

Consider  first  the  productive  hour  plan.  The  total 
amount  to  be  distributed  is  $9,000*.  The  total  number  of 
direct  labor  hours  worked  during  the  month  is  forty 
thousand,  giving  a charge  of  $0,225  to  be  charged  against 
every  job  for  the  number  of  direct  labor  hours  spent 
on  it.  Worked  out  for  job  number  thirty-seven,  this 


gives  the  following  results: 

Material  $1,000 

Wages  900 

Burden  (3,000  hrs.  x .225) 675 


Total  Factory  Cost $2,575 


When  you  distribute  the  burden  by  the  percentage  on 


16 


PLANNING  TO  KNOW  COSTS 


wages  plan  results  differ  considerably.  The  amount  to 
be  distributed  remains  the  same,  but  it  is  distributed  on 
the  basis  of  the  $10,000  spent  for  direct  wages.  Burden 
being  $9,000,  you  have  to  add  to  the  cost  90%  of  direct 
wages  to  account  for  burden.  The  results  follows : 


Material  $1,000 

Wages  900 

Burden  (900  x .90) 810 


Total  Factory  Cost $2,710 


A difference  of  $135  due  to  different  methods,  and 
the  question  immediately  arises,  which  is  more  accurate  ? 

If  your  factory  employs  a large  number  of  men  re- 
ceiving about  the  same  rate  of  pay,  the  hourly  burden 
plan  is  more  accurate.  If,  on  the  other  hand,  your  work- 
men range  from  skilled  mechanics  to  truck-haulers  at 
$9  a week  and  your  pay  roll  is  greatly  diversified,  the 
percentage-on-wages  plan  will  distribute  the  burden  more 
satisfactorily.  For  the  average  shop,  especially  at  the 
beginning,  the  percentage  plan  is  the  simplest  and  most 
practicable. 

The  machine  rate  plan  is  designed  to  meet  the  needs 
of  factories  which  maintain  a number  of  expensive  ma- 
chines, where  the  labor  charge  is  comparatively  unim- 
portant. Under  this  plan  each  machine  assumes  a por- 
tion of  the  total  burden  according  to  the  amount  of 
space  it  occupies,  the  amount  of  light,  heat  and  power  it 
uses,  a proportion  of  the  expense  of  supervision,  and  so 
on.  This  amount  is  divided  by  the  full  number  of  hours 
which  the  shop  runs.  The  resulting  hourly  rate  is 
charged  against  every  job  using  the  machine.  Thus, 
suppose  the  piece  of  machinery  whose  manufacture  was 
considered  above,  required  use  of  three  machines,  A,  B, 
and  C,  with  hourly  rates  of  $0,152,  $0,124  and  $0.21  re- 


WHAT  FACTS  TO  GET 


17 


spectively,  and  four  hundred  hours  were  spent  on  ma- 
chine A,  one  thousand  hours  on  machine  B,  and  twelve 
hundred  hours  on  machine  C.  In  that  case,  the  cost  of 
the  machine,  figured  on  a machine-rate  basis  would  be  as 


follows : 

Material $1,000.00 

Wages 900.00 

Machine  A (400x0.152)  60.80 

Machine  B (1,000x0.124) 124.00 

Machine  C (1,200x0.21) 252.00 


Total  Factory  Cost $2,336.80 


It  is  at  once  apparent  that  the  machine  rate  fails  to 
take  into  consideration  time  when  the  machine  lies  idle. 
If  every  machine  were  running  full  time,  the  plan  would 
be  almost  perfect;  but  stoppages  for  repairs  or  other 
reasons  are  unavoidable.  The  percentage  of  idle  time  is 
not  large  in  the  average  well-managed  shop,  but  in  some 
cases  delays  are  numerous  and  large,  and  then  this  un- 
considered and  unapportioned  burden  may  become  an 
item  of  serious  importance. 

Attempting  to  overcome  this  difficulty,  the  scientific 
machine  rate  plan  is  theoretically  as  nearly  perfect  as 
any  plan  of  apportionment  can  be ; but  practically,  ex- 
cept for  large  or  complex  shops,  it  may  prove  too  in- 
volved to  be  of  great  service. 

Under  this  plan,  the  shop  is  divided  into  a number  of 
production  centers,  each  of  which  is  a machine  with  its 
operator,  or  the  bench  of  a handworker.  Each  center 
pays  rent,  and  assumes  all  other  charges  which  it  can  by 
analysis  properly  be  made  to  bear,  independently  of  what 
is  paid  by  other  production  centers.  This  forms  a 
charge  which  is  apportioned  to  every  job  on  an  hourly 
rate.  All  items,  including  those  which  are  allocated  to 


18 


PLANNING  TO  KNOW  COSTS 


production  centers  as  well  as  those  which  are  not,  are 
gathered  together  in  a monthly  shop  charge  account, 
which  is  simply  the  total  amount  of  burden.  The  differ- 
ence between  this  and  the  amount  charged  to  specific 
jobs  is  distributed  as  a supplementary  rate  over  the 
product  of  the  shop  by  any  desired  plan : hourly  burden, 
or  percentage  on  wages,  as  you  choose.  The  ratio  of  this 
supplementary  rate  to  the  amount  charged  against  jobs 
by  the  machine  rate  is,  from  month  to  month,  a varying 
barometer  of  the  shop’s  efficiency.  In  theory  the  plan, 
as  a refinement  on  the  machine  rate  plan,  is  ideal;  in 
practice  you  may  find  it  unnecessary  to  make  so  com- 
pletely accurate  a distribution. 

MARKETING  an  article  may  cost  as  much  or  more 
than  making  it — finding  the  exact  amount  of 
this  item  and  charging  it  to  the  'proper  class  of  work . 

Up  to  this  point  we  have  considered  only  the  cost  in- 
curred in  laying  the  article  at  the  shipping-room  door 
ready  for  distribution.  Selling  Cost  is  a large  additional 
item  which  must  be  added  to  Factory  Cost  to  secure  the 
total  Cost  to  Make  and  Sell.  Its  amount  varies  greatly 
in  different  businesses.  Some  organizations  have  a large 
force  of  salesmen  and  conduct  expensive  advertising 
campaigns.  Others  are  so  situated  that  they  do  no  ad- 
vertising, have  few  salesmen  or  none  at  all,  and  conduct 
their  selling  with  a minimum  of  correspondence.  In  one 
case,  selling  cost  may  be  more  than  100%  of  Factory 
Cost;  in  the  other  it  may  not  be  more  than  10%.  The 
simplest  and  most  practical  method  of  distributing  Sell- 
ing Cost  is  on  the  basis  of  Factory  Cost. 

If  for  example  the  total  cost  of  a certain  product  in 
the  shop  is  $10,000  for  the  month  of  March,  and  the 
total  selling  cost  is  $1,000,  10%  of  the  factory  cost  of 


WHAT  FACTS  TO  GET 


m 


each  article  represents  the  proportion  of  selling  cost  it 
must  bear.  One  article,  however,  may  actually  cost 
again  as  much  as  another  to  sell,  though  the  factory  cost 
of  both  is  nearly  the  same.  In  the  shop  manufacturing 
a variety  of  articles,  therefore,  it  is  customary  to  classify 
the  objects  with  an  approximation  at  the  actual  amount 
it  costs  to  put  them  on  the  market.  Thus,  in  the  above 
case,  one  class  of  machine  might  require  to  have  20% 
added  to  its  Factory  Cost  to  represent  the  amount  ex- 
pended in  selling  it ; while  in  the  case  of  another  kind  of 


SELLING 

PRICE 


FACTORY 

COST 


SELLING 

COST 


MATERIAL 

r 

DIRECT  LABOR 

INDIRECT  LABOR 

BURDEN  < 

POWER 

HEAT.  LIGHT 

AND  RENT 

OFFICE 

TAXES 

salesmen 

INSURANCE 

ESTIMATES 

DEPRECIATION 

ADVERTISING 

UPKEEP 

TRAVELING 

INTEREST  ON 

INDIRECT 

V INVESTMENT 

EXPENSE 


^ PROFIT 


FIGURE  II:  Selling  price  is  made  up  of  the  three  big  factors:  cost  to 
make,  cost  to  sell , and  profit . This  chart  shows  the  elements  that  enter 
into  each  factor 


article  the  percentage  of  selling  expense — owing  to  its 
being  a staple  and  requiring  a minimum  of  advertising 
and  salesmanship — might  fall  to  as  low  as  three  or  four 
per  cent  of  its  factory  cost. 


20 


PLANNING  TO  KNOW  COSTS 


The  difference  between  the  total  cost  of  any  article, 
which  may  be  called  the  Cost  to  Make  and  Sell,  and  the 
final  selling  price  is  profit;  or  if  the  margin  runs  the 
other  way,  loss. 

Your  cost  system  tells  you  what  you  must  know  about 
your  business  to  conduct  it  on  a basis  of  profit  and  effi- 
ciency. It  gives  you  a record  of  and  check  on  all  ma- 
terials and  supplies,  it  furnishes  a record  of  the  day’s 
work  of  each  producing  workman,  tells  where  he  worked 
and  what  he  accomplished;  it  divides  with  as  much  ac- 
curacy as  is  possible  or  necessary  the  general  expense, 
placing  the  burden  where  it  belongs;  it  forms,  finally, 
the  basis  for  an  intelligent  analysis  and  comparison  of 
all  units  of  cost.  Know  your  costs  and  you  have  in  hand 
the  means  of  stopping  blind  leaks,  of  cutting  off  un- 
profitable lines  of  goods  and  meeting  competition  in  a 
fair  and  square  way,  knowing  precisely  what  you  are 
doing. 


C$3 


T^FFICIENCY  means  keen  self-criticism . It  means  to 
go  out  into  the  shop  and  find  nothing  there  that  is  sacred 
or  fixed.  It  means  that  in  that  shop  six  months  ago  shall 
he  ancient  history.  It  means  the  dropping  of  tradition , 
the  forgetting  of  ghosts , the  questioning  of  everything.  It 
means  the  old  Scripture  doctrine , “ Prove  all  things.  Hold 
fast  that  which  is  good  ” and  only  that. 


— William  C.  Redfield 

Secretary  of  Commerce 


II 


MAKING  WORKMEN  PARTNERS 
IN  COST  CUTTING 

By  Vernon  Hoxie 

Vice-President,  Peerless  Wire  Fence  Company 


WHEN  I was  serving  my  apprenticeship  at  a me- 
chanic’s bench,  we  thought  our  employer  had  a 
perfect  cost  system,  for  it  took  the  time  of  two  clerks  and 
required  more  than  a score  of  bewildering  forms  and 
cards.  Its  operation  was  an  impressive  ceremony — so 
far  removed  from  our  conception  that  we  supposed,  of 
course,  it  must  be  good.  Workmen  who  were  responsible 
for  wastes  in  material  and  labor  did  not  understand  the 
method  of  keeping  records  and  locating  leakages.  And 
now  I doubt  if  the  manager  knew  much  more.  Once  a 
month  he  would  storm  about  the  high  cost  of  manufac- 
ture, but  he  would  not  point  out  specifically  where  the 
costs  were  running  up  or  why.  From  my  later  experi- 
ence as  a factory  executive  I know  that  his  cost  system, 
like  many  others,  was  inefficient  because  production  costs 
were  not  rightly  distributed  and  because  the  men  who 
were  responsible  for  production  did  not  understand  the 
application  of  the  system  and  how  it  touched  them. 

A cost  system  that  is  actually  going  to  cut  down  costs 
must  show  precisely  where  wastes  of  material  and  labor 
are  occurring  and  provide  some  means  for  checking  them 
at  once.  And  it  must  be  so  simple  that  every  employee 
can  understand  it  and  know  just  how  his  mistakes  will 
show  up  in  the  final  figures. 


22 


PLANNING  TO  KNOW  COSTS 


But  a cost  system  will  not  cut  down  costs.  All  it 
can  do  is  to  show  you  where  to  use  the  pruning-knife. 
This  I do  by  taking  my  foremen  and  employees  into  my 
confidence.  When  Harry  K — is  promoted  from  a loom 
to  foreman  of  a weaving  room  I call  him  into  my  office 
and  we  get  together. 

“It’s  up  to  me,  Harry,”  I tell  the  new  foreman,,  “to 
produce  the  best  fence  at  the  lowest  cost,  and  I want  you 
to  help  me  do  it.” 

Then  with  sample  time  sheets,  repair  tickets  and  re- 
quisition slips  I show  him  just  how  the  timekeeper 
makes  up  the  cost  records  for  each  day.  When  the  new 
foreman  leaves  my  desk  he  has  a good  idea  of  the  im- 
portance of  figures  and  how  his  work  out  there  in  the 
weaving  room  will  be  reduced  to  cold  hard  net  facts  each 
night. 


FREQUENT  meeting  and  daily  contact  with  foremen 
by  the  executive  puts  the  men  on  guard  to  find  hidden 
leaks  and  time-saving  methods  in  their  work. 

By  distributing  the  production  among  the  weaving 
rooms  and  looms  it  has  been  possible  to  stimulate  com- 
petition between  men  of  the  various  rooms.  When  a 
loom  breaks  or  a wire  snarls,  the  foreman  is  sure  to  let 
me  know  at  once  (each  department  has  a ’phone)  why 
the  day’s  work  will  show  a shortage.  If  reports  were 
made  monthly  the  average  might  show  up  all  right,  but 
the  smallest  delay  looms  up  in  the  daily  report.  Know- 
ing this,  the  foreman  and  workers  are  alike  more  anxi- 
ous to  get  the  machine  running  again  as  soon  as  possible, 
and  by  having  the  trouble  reported  at  once  I am  in  a po- 
sition to  render  assistance  if  it  be  needed. 

During  the  day  I have  conferences  with  my  foremen 
in  the  office  and  in  their  departments.  They  are  free  to 


WORKMEN  WHO  HELP  TO  SAVE 


23 


come  to  me  at  any  time  or  any  place.  There  is  absolute 
harmony  between  us,  and  I encourage  the  men  to  look 
upon  me  as  only  a fellow  worker  in  the  production  of 
wire  fence.  But  I am  convinced  that  our  whole  co- 


DAILY  TIME. REPORT  SHEET 

MACH  I NET  SHOP,  BLACKSMITH  SHOP,  DIE  ROOM  AND 
PATTERN  ROOM 

NAIVLE  NO. 

- - - - - 1.91 

STATE  HERE  THE  KIND  OF  WORK  YOU  HOURS 


HAVE  BEEN  DOING 


TOTAL  HOURS  

NOTE:  EACH  KIND  OF  WORK  MUST  BE  ITEMIZED 

O.  K FOREMAN 


FORM  I:  A daily  time  report  sheet  like  this  is  filled  out  at  night  by  every 
employee  and  given  to  the  timekeeper,  who  compares  the  figures  with  the 
time  clock  records 

operative  cost  system  has  been  built  and  held  together 
in  the  bi-monthly  meetings  of  all  the  foremen. 

This  is  probably  the  most  important  feature  of  our 
system.  While  it  may  appear  to  be  far  removed  from  a 
cost  system,  I have  proved  to  my  own  satisfaction  that  it 
bears  the  closest  relation  to  cutting  costs  and  increasing 
the  production  efficiency  of  individuals  and  departments. 
The  men  come  over  to  the  factory  in  the  evening  for  the 
session.  We  gather  around  a big  table  and  turn  the 
meeting  into  a social  and  business  affair.  Everything  is 


24 


PLANNING  TO  KNOW  COSTS 


so  absolutely  informal  that  every  man  feels  like  coming 
right  out  with  his  troubles — and  experience  shows  that 
he  actually  does  so. 

Jim  Brown,  Foreman  of  Warehouse  B,  for  instance, 
tells  us  that  he  believes  it  is  costing  too  much  to  get  the 
wire  into  a certain  switch.  Immediately  we  consider  the 
problem  and  try  to  draw  out  a suggestion  for  cutting 
down  the  cost.  The  foreman  of  Loom  Room  3 is  having 
trouble  with  a certain  loom,  and  he  tells  us  about  that. 
Probably  the  foreman  of  one  of  the  other  rooms  has  been 
up  against  this  same  problem  and  he  tells  his  fellow 
worker  how  to  get  around  the  trouble.  Thus  another 
cost  is  cut. 

I know  that  these  meetings  and  the  whole  general  co- 
operative spirit  which  exists  among  the  men  pay  our  fac- 
tory in  decreased  costs,  for  some  of  our  biggest  money- 
saving policies  and  operations  have  been  created  or  sug- 
gested at  these  meetings.  At  one  of  these  meetings  our 
head  draftsman  suggested  the  idea  of  the  telpher  or 
monorail  system  for  handling  wire.  Little  did  any  one 
think  when  he  suggested  it  that  the  idea  would  ma- 
terialize into  the  longest  overhead  transportation  system 
of  its  kind  in  the  world.  The  worth  of  this  suggestion 
is  given  particular  significance  as  a cost  cutting  element 
when  it  is  known  that  this  system  paid  for  itself  in  two 
years,  and  that  it  saves  us  forty  per  cent  of  the  former 
cost  of  handling  our  finished  product. 

At  another  cost-cutting  conference  the  machine  shop 
foreman  suggested  a form  of  automatic  releasing  grap- 
ples for  handling  the  fence  in  connection  with  the  telpher 
system.  Two  months  ago,  the  assistant  superintend- 
ent suggested  a wire  guide — a simple  easting,  but  an 
improvement  which  holds  the  warp  wires  of  the  fence 
firmly  in  position  to  receive  the  tie  or  locking  wire,  and 


WORKMEN  WHO  HELP  TO  SAVE 


25 


enables  us  to  speed  up  the  looms,  and  thus  make  20  per 
cent  more  fence  a day. 

Every  meeting  contributes  some  item  that  cuts  down 
the  cost.  But  even  if  these  meetings  did  not  produce 
one  suggestion,  they  would  be  justified  by  the  spirit  of 
cooperation  which  they  have  built  up,  and  this  spirit  of 
cooperation  has  passed  further  down  the  line  to  the 
employees  working  for  these  various  foremen. 

The  details  of  the  cost  system  necessarily  differ  with 
each  line  of  industry,  but  the  principle  is  of  universal 


STOCK  ROOM 

191  

DELIVER  TO  BEARER  THE  FOLLOWING 

MATERIAL  TO  fif  CHARGED  TO 

NO. 

IN  LOOM  ROOM  NO. 

FOREMAN 

NO. 

FROM 

BIN  NO. 

ABOVE  MATERIAL  ISSUED  BY 

FORM  II:  The  stock  room  reports  on  a form  like  this  the  amount  of  ma- 
terial issued  to  each  department.  These  reports  also  go  to  the  timekeeper 9 
who  records  the  cost  in  time 


application  — - the  ultimate  way  to  cut  costs  is  through 
men.  For  unless  they  understand  and  see  clearly  how 
everything  they  do  or  fail  to  do  affects  the  production, 
the  costs  cannot  be  cut  to  the  bone. 


£6 


PLANNING  TO  KNOW  COSTS 


A cost  system  is  absolutely  essential  to  every  manufac- 
turing business.  In  experimenting  with  our  cost  system, 
we  have  concluded  that  it  should  have  two  features:  it 
should  be  so  simple  that  any  employee  can  understand  it 
and  should  furnish  the  production  manager  with  daily, 
or  at  least  weekly  reports  of  production  by  departments. 

SIMPLICITY  is  the  first  essential  of  good  cost  system ; 

thoroughness  is  the  second — finding  the  facts 
promptly  and  in  detail  saves  many  wastes . 

The  first  feature  enables  the  executive  to  point  out  to 
his  foremen  the  reason  for  his  orders  and  secures  active 
cooperation  in  cutting  down  costs  in  every  department. 
The  second  feature  gives  the  executive  daily  and  weekly 
bulletins  of  this  production.  An  error  today  is  rectified 
tomorrow.  It  doesn’t  eat  up  profits  for  a month  before 
being  discovered. 

Our  cost  system  is  so  simple  that  the  timekeeper 
makes  it  up  in  his  spare  time,  and  every  foreman  under- 
stands its  operation.  It  furnishes  me  with  daily  bulletins 
that  are  the  basis  of  my  day-to-day  supervision.  The 
records  of  the  previous  day ’s  work  which  are  laid  on  my 
desk  each  morning  enable  me  to  keep  my  hand  on  the 
pulse  of  every  department. 

The  daily  costs  of  manufacture  are  made  from  work- 
men’s time  sheets,  repair  tickets  and  requisitions  in  the 
stock  room.  At  the  end  of  each  day  every  employee 
must  fill  out  a daily  time  report  sheet  (Form  I).  These 
are  handed  to  the  foremen  and  then  to  the  timekeeper, 
who  compares  them  next  day  with  the  clock  records  for 
the  purpose  of  verifying  the  time  consumed. 

In  the  meantime  the  timekeeper  has  received  from  the 
stock  room  all  the  requisitions  (Form  II)  for  material 
issued  from  the  various  departments  for  the  previous 


WORKMEN  WHO  HELP  TO  SAVE 


27 


day.  From  the  machine  shop  come  all  repair  tickets. 
The  machine  shop  is  run  as  if  a separate  institution. 
When  some  department  requires  the  services  of  a ma- 
chinist, the  foreman  issues  an  order  on  the  machine  shop, 
and  the  machinist’s  services  are  charged  against  this  de- 
partment. 

As  soon  as  the  timekeeper  has  received  all  the  time 


RE 

lQUISITION 

Iftl 

DEPT 

BY 

THE  FOLLOWING  SPECIAL  ITEMS:- 

FOR  _______ 

AT 

ORDER  NO.  

note:  if  for  any 

NOT  BE  FILLED  BY  T 
SUPERINTENDENT. 

SUPT. 

REASON  THIS  REQUISITION  CAN 

HE  DATE  SPECIFIED  NOTIFY  THE 

FORM  III:  This  is  the  form  of  requisition  given  to  the  stock  room.  The 
stockkeeper  reports  each  evening  to  the  timekeeper  what  stock  has  been  issued 
to  each  department 


sheets,  repair  tickets  and  requisitions,  he  spreads  these 
upon  an  analysis  sheet  (Form  IY)  which  distributes 
the  costs  of  manufacturing  the  previous  day’s  fence  into 
twelve  divisions  of  fence  manufacture.  Such  costs  as  oil, 
waste  and  general  expense  are  secured  from  the  requisi- 


28 


PLANNING  TO  KNOW  COSTS 


tion  slips  and  charged  to  the  proper  department.  The 
machinery  repairs  are  secured  from  the  job  tickets  which 
the  machinist  turns  in  on  the  completion  of  each  job. 

FINDING  leaks  means  the  careful  study  of  accurately ^ 

'prepared  reports — expense  figures  bring  to  Ugh 
unnoticed  abuses  and  especially  efficient  work . 

On  the  expense  report  shown  for  one  month,  it  may  be 
noted  that  Loom  Room  1,  for  example,  had  charged 
against  it  a total  of  $53.89  for  machinery  repairs,  while 
Loom  Rooms  2 and  3 had  charges  for  this  work  of  $11.48 
and  $14.44.  Thus  the  repair  work  for  the  day  in  Loom 
Room  1 increased  the  manufacturing  cost  to  $5.96  per  ton 
because  of  the  expense  of  repairs  and  intermittent  idle- 
ness of  machines.  Loom  Room  2 with  about  one-fifth 
less  repairs  turned  out  nearly  five  times  the  work  and 
consequently  had  a low  cost  of  manufacture — the  price 
per  ton  in  this  room  being  $2.05.  Loom  Room  3 with 
$14.44  repairs  had  a manufacturing  cost  of  $6.17  due  to 
the  fact  that  this  room  was  manufacturing  a narrow 
spaced  fence  on  which  there  is  a corresponding  increase 
in  price. 

With  this  report  on  my  desk  each  afternoon  I com- 
pare it  carefully  with  the  reports  of  preceding  days  and 
can  instantly  catch  the  slightest  increase  of  cost  in  any 
process  of  manufacture.  When  I see  a big  repair  bill  or 
a charge  heavier  than  usual,  I get  the  foreman  in  charge 
on  the  telephone  and  learn  the  reason  before  he  has  an 
opportunity  to  duplicate  the  charge  on  today’s  sheet. 
The  men  know  that  I will  see  these  things,  and  usually 
they  beat  the  report  to  me  and  tell  me  why  the  cost  per 
ton  is  going  to  be  high  on  the  day’s  expense  report.  And 
this  is  just  what  I want  them  to  do,  for  it  shows  that 
they  thoroughly  understand  and  appreciate  the  applica- 


EXPENSE  REPORT 


WORKMEN  WHO  HELP  TO  SAVE 


29 


FORM  IV  ( large  sheet):  On  this  form  cost  items  are  analyzed  daily.  The  information  is  taken  from  requisition  slips,  time 
sheets  and  repair  tickets.  FORM  V ( smaller  sheet):  Warehouse  expenses  are  filled  out  on  this  report  sheet 


so 


PLANNING  TO  KNOW  COSTS 


tion  of  the  system  and  want  to  keep  down  the  costs  in 
their  departments. 

The  warehouse  expense  report  is  made  up  from  time 
sheets,  repair  tickets  and  requisitions.  In  addition  to 
the  warehouse  expense,  it  shows  the  daily  costs  of  con- 
ducting the  machine  shop,  die  room,  blacksmith  shop, 
pattern  room  and  such  charges  as  are  made  under  the 
heads  of  real  estate,  general  expense  and  advertising. 
Charges  under  these  heads  and  the  power  plant  are  ap- 
portioned among  the  proper  departments  of  the  business. 
This  sheet  is  shown  in  Form  V. 

How  to  cut  down  costs  is  every  factory  executive’s 
problem.  And  the  secret  lies,  not  alone  in  the  cost  sys- 
tem, but  in  its  application — in  getting  the  workers  who 
are  responsible  for  costs  into  a cooperative  spirit,  willing 
to  help  each  other  and  straining  every  point  to  keep 
down  costs  in  their  individual  departments.  But  this 
cannot  be  done  unless  the  system  is  simple  and  under- 
standable. 


TF  o man  knows  what  every  article  he  manufactures  costs 
him  to  produce,  and  is  absolutely  certain  that  not  the  most 
insignificant  element  of  that  cost  has  by  any  chance  been 
omitted , he  is  in  a position  to  meet  competition  and  to  meet  i t 
closely . 

— Alexander  H.  Revell 

President,  A.  H.  Revell  Company 


Ill 


WHERE  TO  SAVE  IN 
COST  KEEPING 

By  N.  P.  Pritchard 


MANUFACTURERS  who  use  cost  systems  may  be 
divided  into  two  classes — those  who  are  afraid  of 
the  obvious  advantages  of  a cost  system  because  of  the 
expense  it  will  involve,,  and  those  who  overdo  cost  work 
to  an  extent  which  they  themselves  never  realize.  The 
average  manufacturer  should  take  the  middle  ground. 
You  cannot  get  accurate  costs  without  paying  for  them, 
but  you  must  also  realize  that  the  cost  department  can 
be  handled  economically  just  as  well  as  any  other  de- 
partment in  the  factory. 

Some  men  believe  that  comprehensive  costs  can  only 
be  arrived  at  by  an  army  of  clerks.  Others  are  just  as 
sure  that  simpler  methods  and  fewer  clerks  give  better 
and  quicker  results.  After  ten  years’  practice  and  ex- 
perience in  cost  work  I believe  that  the  simpler  the 
methods  of  arriving  at  costs,  the  better ; the  fewer  parts, 
the  less  liable  is  the  machine  to  get  out  of  order;  and 
this  fact  is  equally  as  applicable  to  the  cost  office. 

To  manufacture  economically,  costs  must  be  known, 
but  how  many  factory  owners  know  what  it  costs  to 
get  their  costs  ? I have  talked  with  a great  many  manu- 
facturers and  have  been  surprised  to  learn  that  though 
they  wanted  correct  costs  they  paid  very  little  attention 
to  the  details  of  their  cost  department  beyond  com- 


32 


PLANNING  TO  KNOW  COSTS 


plaining  about  the  excessive  expense  of  its  maintenance. 

In  establishing  an  economical  and  accurate  cost  system 
the  first  thing  necessary  is  to  fit  the  system  to  your 
business.  The  organization  of  the  cost  department  has 
much  to  do  with  the  success  or  failure  and  the  ex- 
pense of  such  work.  Many  systems  are  inaugurated  at  a 
great  expense  only  to  be  abandoned  within  a short  time 
because  the  system  runs  the  factory.  *, 

Such  is  apt  to  be  the  case  with  that  second  class  of 
manufacturers  who  overload  their  business  with  records. 
I know  of  a manufacturer  who  thought  he  needed  a new 
system.  He  wanted  to  get  costs  in  great  detail  and  to 
know  quickly  the  cost  of  doing  work  in  each  department. 
So  he  called  in  an  outside  man  who  went  over  the  plant 
and  the  system  then  in  use.  The  expert  reported  that  the 
new  system  would  not  cost  him  more  than  five  thousand 
dollars  to  install.  This  manufacturer’s  old  cost  system 
was  really  doing  satisfactory  work.  Two  hours  after  a 
lot  of  machines  were  completed  the  costs  were  known  on 
every  piece,  and  these  costs  were  surprisingly  correct  for 
the  amount  of  clerical  help  on  the  work.  This  cost  de- 
partment consisted  of  a manager  and  three  clerks.  The 
total  wages  for  the  three  were  sixty  dollars  a week.  It 
cost  about  one  thousand  dollars  to  install  the  system. 

FITTING  the  cost  system  to  the  size  and  needs  of  the 
business  is  essential  if  it  is  not  to  prove  top-heavy 
and  more  expensive  than  it  is  worth . 

But  because  the  owner  wanted  more  detail  the  expert 
was  engaged  and  the  cost  force  increased  to  ten  men. 
It  now  costs  this  manufacturer  seventy-five  cents  to  find 
the  cost  on  a twenty-one  cent  article.  Of  course,  on 
higher  priced  goods  the  proportionate  cost  of  finding  the 
costs  is  not  so  obviously  wrong. 


I 


COST  DEPARTMENT  ECONOMIES  33 


In  building  an  organization  to  take  care  of  the  cost 
[Work  of  a factory,  use  care  in  hiring  the  man  in  charge 
(of  the  cost  department.  Give  him  from  one  hundred 
and  twenty-five  dollars  to  one  hundred  and  fifty  dollars 
a month  if  your  plant  employs  from  four  hundred  to 
five  hundred  men.  Let  him  take  a month  or  two  in  get- 
ting acquainted  with  factory  conditions  and  so  adapt 
the  system  he  knows  about  to  those  conditions.  Then 
after  the  system  is  in  working  order,  have  him  keep  it 
going  and  make  changes  which  are  bound  to  occur 
even  in  the  most  carefully  thought-out  system. 

I was  in  a plant  some  time  ago  where  the  attitude  of 
the  manager  was  responsible  for  the  high  cost  of  that 
department.  He  wouldn’t  give  the  cost  man  responsi- 
bility, with  the  result  that  his  cost  department,  he  told 
me,  cost  him  $10,000  a year. 

In  another  shop  in  the  same  line  of  business  where 
the  cost  manager  had  a little  more  to  say,  the  depart- 
ment cost  $4,732  per  year.  If  my  friend  had  left  his 
cost  manager,  who  was  a very  capable  man,  alone  he 
would  have  had  the  same,  if  not  better  results,  and 
made  a great  saving. 

At  still  another  plant,  the  system  was  changed  about 
as  often  as  the  weather,  simply  because  it  was  not  work- 
ing in  about  two  weeks  after  it  was  installed.  Here  the 
manner  of  operating  was  to  put  a system  on  paper  and 
assume  that  because  it  worked  theoretically,  it  should  be 
a success  the  minute  it  was  put  to  the  test. 

This  firm  changed  cost  managers  and  systems  about 
four  times  in  a year ; its  heads  are  still  surprised  at  how 
much  money  they  have  spent,  and  how  little  authentic 
information  they  have.  The  other  extreme  was  a large 
shop  which  employed  nine  hundred  men.  This  shop 
had  every  facility  for  getting  out  the  work,  and  the 


34 


PLANNING  TO  KNOW  COSTS 


various  departments  were  arranged  in  rotation,  so  that 
if  the  first  operation  was  done  on  the  first  floor,  you  did 
not  have  to  send  work  to  the  top  floor  for  the  next  opera- 
tion. The  shop  was  increasing  in  size  and  the  firm  was 
going  to  put  in  a more  comprehensive  system  that  would 
be  in  keeping  with  a strictly  up-to-the-minute  plant. 
The  secretary  told  me  that  he  did  not  expect  to  have  the 
new  system  in  working  order  for  at  least  six  months, 
and  that  the  firm  was  perfectly  willing  that  the  man- 
ager should  devote  this  time  to  the  study  of  the  plant  and 
its  particular  needs.  It  simply  figured  that  by  so  doing 
it  would  know  exactly  what  it  was  about  and  thereby 
avoid  expensive  future  changes. 

INSTALLING  a cost  accounting  system  must  be  gone 
about  gradually , starting  first  in  the  stock  room  and 
working  from  there  into  all  departments. 

In  my  own  work  I find  that  the  most  inexpensive  way 
of  installing  a cost  system  is  to  put  it  in  gradually. 
Take  np  the  stock  rooms  first.  Are  they  arranged  so 
that  the  work,  both  physical  and  manual,  can  be  done 
to  best  advantage?  The  facts  the  stock  clerk  collects 
determine  the  accuracy  of  your  data  on  the  amount  of 
material  used. 

Here  is  one  of  the  points  where  it  is  well  to  study 
what  it  costs  to  get  costs.  One  stock  clerk  can  attend  to 
considerable  work  if  the  hour  or  two  that  is  wasted  by 
the  stock  boys  every  day  is  utilized.  Stock  boys  can 
check  the  bills,  keep  the  supplies’  consumption  sheet  in 
order  and  do  other  routine  work  for  the  stock  clerk,  who 
will  then  have  time  to  devote  his  attention  to  keeping 
up  the  stock  on  hand.  The  better  arranged  the  stock 
room  is  the  fewer  clerks  are  required  and  the  lower  the 
cost  of  finding  the  cost  of  material. 


COST  DEPARTMENT  ECONOMIES 


35 


The  cost  of  handling  stock  in  one  shop  was  cut  down, 
and  the  number  of  laborers  needed  to  handle  it  was 
greatly  reduced,  to  say  nothing  of  trucking  and  elevator 
service.  This  was  taken  care  of  by  having  a stock 
room  on  each  floor.  These  branch  stock  rooms  carried 
only  the  material  used  on  this  floor  for  the  construction 
of  the  machines  which  these  departments  built. 

The  third  floor  was  devoted  exclusively  to  the  manu- 
facture of  milling  machines.  All  the  machinery  neces- 
sary for  the  production  of  the  finished  article  was  also 
located  on  this  floor,  with  the  exception  of  the  planers 
and  automatic  screw  machines. 

When  we  wanted  to  build  No.  3 millers,  all  the  raw 
stock  was  carried  up  to  this  department  and  distributed 
among  the  machines.  As  soon  as  the  parts  were  com- 
pleted they  were  put  in  this  third  floor  stock  room, 
instead  of  being  hauled  downstairs,  to  be  again  returned 
to  the  third  floor  when  the  assemblers  were  ready  for 
it.  The  machine  gang  was  always  one  lot  ahead  of  the 
assembling  gang. 

This  worked  wonders  in  the  way  of  prompt  deliveries, 
as  the  finished  parts  were  always  ready  for  assembling. 
This  milling  machine  department  was  composed  of  fifty 
men.  One  man  kept  time,  ordered  the  raw  material, 
and  kept  the  stock  room  in  A-l  condition,  and  he  was 
minus  his  left  hand. 

The  stock  office  is  but  one  branch  of  the  cost  depart- 
ment and  the  more  uniformly  it  is  laid  out  the  easier  it 
is  to  get  and  handle  material  and  the  fewer  the  clerks 
required  to  keep  track  of  it. 

The  third  man  to  consider  in  your  cost  department  is 
the  time  clerk.  Usually  the  time  clerk’s  position  is 
undervalued.  Of  all  clerical  positions  in  the  cost  office 
that  of  timekeeper  is  the  hardest,  and  more  depends 


36 


PLANNING  TO  KNOW  COSTS 


upon  him  than  on  any  other  man  in  the  force.  Where 
work  is  changing  continually  one  timekeeper  to  every 
one  hundred  men  is  about  the  limit  of  capacity.  I would 
rather  have  one  too  many  than  one  short,  because  any 
spare  time  a surplus  man  may  have  may  be  used  to 
advantage  by  a cost  manager  who  is  a good  executive. 
The  timekeeper  should  know  the  products,  have  a fair 
idea  as  to  what  operations  are  necessary  to  complete  a 
piece  and  about  how  long  each  operation  should  take. 

MECHANICAL  devices  in  the  timekeeping  depart- 
ment do  much  to  save  the  cost  of  clerical  labor  and 
help  to  speed  up  the  machinery  of  cost-finding . 

The  time-keeping  department  is  one  of  the  most  im- 
portant in  assembling  costs  and  ought  to  be  studied  care- 
fully. In  one  factory  time  is  saved  by  giving  parts  and 
operations  numbers  instead  of  names.  The  time  clerk 
does  not  have  to  write  on  the  form,  “ J.  Adams,  boring 
twenty-four-inch  head  cap;”  he  writes  instead,  the 
man’s  check-number,  No.  40,  operation  No.  3,  part  H 2, 
in  which  designation  H stands  for  the  size  of  the  ma- 
chine on  which  No.  2 the  head  cap  is  to  be  used.  This 
method  not  only  makes  a more  legible  card,  but  it  takes 
about  a third  as  long  to  write. 

When  I first  started  a time  system  through  the  shop, 
the  time  was  marked  on  Forms  I and  II ; Form  I was 
used  for  machine  work  and  Form  II  for  the  assembling. 
There  were  two  objections  to  this,  however.  First,-  two 
cards  for  the  same  machines  meant  double  work  with  a 
chance  of  having  some  of  the  Form  II  cards  lost. 

The  other  objection  was  caused  by  not  being  able  to 
compute  the  time  or  cost  until  the  job  had  been  com- 
pleted, as  the  card  had  to  remain  with  the  work  until 
the  last  machine  operation  had  been  completed  and  then 


COST  DEPARTMENT  ECONOMIES 


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37 


FORMS  1 and  II:  A machine  shop  used  the  larger  blank  ( FORM  I)  for  machine  work , and  the  front  card  ( FORM 
//)  for  assembling  work . 77ii$  duplication  of  clerical  and  filing  labor  was  done  away  with  by  devising  one  efficient 

card f the  center  one , FORM  III 


38 


PLANNING  TO  KNOW  COSTS 


it  followed  the  work  to  the  stock  room,  where  it  was 
inspected  and  the  number  of  rejected  parts  marked  on 
the  card.  Only  after  this  stage  was  the  card  allowed 
away  from  the  work. 

These  objections  were  overcome  by  using  Form  III. 
The  original  time  card  (Form  I)  was  made  smaller, 
but  it  displayed  the  information  in  a much  more  com- 
pact and  usable  shape.  The  new  time  card  was  made 
out  each  day,  and  for  each  man,  by  the  personal  nota- 
tion of  the  timekeeper,  but  it  could  have  been  done 
equally  as  well  by  time  stamps. 

Every  night  these  cards  were  sent  to  the  office  and 
checked  against  the  clock  slips  the  first  thing  in  the 
morning,  after  which  they  were  entered  on  the  com- 
parative cost  card. 

By  adopting  these  cards  instead  of  the  old  ones  we 
were  able  to  know  the  cost  and  time  on  every  job  in  the 
shop  as  it  progressed,  and  as  the  time  was  distributed 
on  the  comparative  cost  cards  at  once,  it  was  not  neces- 
sary to  have  files  for  the  keeping  of  the  originals.  It 
cut  out  the  two  cards,  and  made  time-keeping  easier  and 
quicker,  besides  cutting  in  half  the  clerical  work  in  the 
office. 

Only  a careful  study  of  the  cost  department  and  the 
work  of  a good  cost  man  will  develop  little  short  cuts 
like  these,  which  will  tend  to  reduce  the  cost  of  getting 
costs.  Probably  a saving  in  the  cost  department  can  be 
made  in  the  office  where  the  time,  expense  and  material 
are  distributed  on  the  various  jobs.  I have  found  by 
actual  test  that  a girl  with  a calculating  machine  can- 
not be  beaten  as  a cost  clerk.  Her  records  are  more 
reliable,  neater  and  more  conscientious  than  those  made 
by  the  average  man.  It  has  been  proved  that  a girl  and 
a machine  can  do  as  much  as  three  men  at  a salary  of 


COST  DEPARTMENT  ECONOMIES 


39 


one  man,  and  in  some  cases  the  clerical  work  can  be  done 
for  half  what  it  would  cost  to  pay  an  ordinary  clerk. 
The  girl  will  operate  a machine  ten  hours  a day  for 
sixteen  dollars  a week  and  do  the  work  of  three  men. 

LITTLE  savings  which  prevent  big  losses  can  be 
made  in  the  cost  office  as  well  as  in  other  depart- 
ments of  a business — efficiency , not  size , counts. 

If  the  factory  is  large  enough  to  have  two  clerks  be- 
sides the  cost  manager  in  the  office  it  is  advisable  to  have 
one  of  the  clerks  familiar  with  the  typewriter.  One 
adding  machine  operator  made  a saving  in  handling 
records  of  sixty  per  cent  the  first  year  in  one  factory 
and  by  spreading  the  cost  of  the  machine  with  an 
allowance  for  repairs  and  an  allowance  of  six  per  cent 
on  the  investment,  it  costs  eight  cents  a day  to  own  a 
machine  in  the  office.  It  is  a valuable  cost  reducer. 

In  getting  the  total  cost  of  maintaining  a cost  depart- 
ment, the  final  result  depends  upon  the  size  of  the  plant, 
but  whatever  the  size  of  the  plant,  the  first  year’s  costs 
will  be  higher  than  that  of  the  succeeding  year.  Gener- 
ally it  will  run  from  one  thousand  to  two  thousand 
dollars  higher.  This  expense  is  largely  brought  about  by 
the  changes  which  have  to  be  made,  condensing  in  this 
place,  enlarging  in  another.  It  is  impossible  to  avoid 
entirely  this  increase  of  the  first  year’s  expense,  but  it 
can  be  brought  to  a minimum  by  going  slow  and  consid- 
ering every  detail  from  every  angle. 

A good  cost  system  consists  of  a series  of  units  so 
closely  cemented  together  that  to  an  outsider  they  ap- 
pear as  one.  To  operate  a cost  department  satisfactorily 
the  man  in  charge  must  be  a good  executive.  He  ought 
not  to  have  much  actual  clerical  work  to  do  because  his 
value  and  the  value  of  the  cost  department  depend  not 


40 


PLANNING  TO  KNOW  COSTS 


much  on  the  actual  keeping  of  the  records  as  in  point- 
ing out  the  records  that  show  how  costs  can  be  reduced. 

A cost  department  is  unquestionably  an  expense.  It 
does  not  make  so  much  difference  how  little  or  how 
much  it  costs,  but  as  an  expense  it  must  be  charged  over 
each  job.  This  should  not  interfere  with  getting  some 
kind  of  an  idea  of  how  long  it  takes  a clerk  to  do  his 
work  and  if  the  cost  department  is  studied  with  the  idea 
of  reducing  the  cost  of  getting  costs  a great  saving  can 
be  made. 

Take  forms  and  blanks  as  a sample  of  what  can  be 
done  in  reducing  costs.  One  manager  wanted  a form 
drawn  up  which  would  show  him  the  amount  of  time 
each  job  took,  the  cost  of  material  and  the  total  cost  on 
every  piece  and  every  machine  that  was  manufactured. 
He  talked  the  matter  over  with  the  chief  draftsman  and 
the  superintendent;  thought  it  was  impossible  to  get 
out  a sheet  for  every  size  and  class  of  machine,  but  a 
little  study  of  what  was  required,  and  a classification  of 
some  of  the  details  resulted  in  getting  all  this  informa- 
tion on  a sheet  eight  and  one-half  by  eleven  inches. 

Under  each  component  part  were  headings  for  each 
part  of  the  machine.  A space  was  left  for  any  changes 
made  through  a change  in  design  or  special  features. 
These  changes  were  added  in  by  hand.  Three  sheets  of 
this  sort  were  sufficient  to  contain  complete  records  of 
each  machine.  These  sheets  were  made  of  the  stand- 
ard form  and  printed  in  lots  of  one  thousand.  A little 
thought  had  cut  the  printer’s  bill  seventy-five  per  cent, 
to  say  nothing  of  the  time  and  bother  of  keeping  track 
of  different  conditions  and  classes  of  machines. 

It  is  the  handling  of  little  details  like  these  that  de- 
cides in  good  measure  how  much  your  cost  department 
will  cost.  The  whole  cost  question  can  be  summed  up 


COST  DEPARTMENT  ECONOMIES 


41 


as  follows:  Honestly  study  your  own  costs,  and  then 
face  the  truth.  Hire  a good  man,  show  that  you  have 
confidence  in  him,  and  pay  enough  to  make  enthusiasm 
worth  while.  Have  it  generally  understood  in  the  shop 
and  office  that  his  word  goes.  Many  a money-saving 
idea  has  been  killed  by  foremen,  because  it  did  not  suit 
their  convenience.  Cooperation  does  more  to  cut  the 
cost  of  costs  than  anything  else.  Of  course,  the  number 
of  clerks  that  you  have  in  the  cost  department  largely 
depends  on  how  much  information  you  desire  to  get. 
In  a shop  of  five  hundred  men,  one  stock  clerk,  two  time 
clerks,  two  clerks  in  the  office,  and  a cost  manager  are 
ample. 


Cg3 


A T THE  desk  of  the  chief  executive  there  must  he  focused 
in  compact  form  the  substance  of  all  the  factors  entering 
production.  By  this  means  alone  can  the  factory  output 
he  regulated  and  the  most  efficient  use  he  made  of  men,  ma- 
terials and  machinery. 

— Edward  T.  Runge 

Factory  Organizer  and  Cost  Accountant 


IV 


MANAGING  A COST  SYSTEM 

By  J.  M.  Butler 


SITTING  in  the  office  of  one  of  his  clients,,  a consult- 
ing accountant  listened  while  the  president  of  a 
Northern  company  told  him  the  details  of  a branch  busi- 
ness in  Mississippi  for  which  he  desired  a cost  system. 
The  Northern  company  manufactured  limestone  building 
cement,  while  the  Southern  industry  made  cotton  cloth  of 
a coarse  texture  for  the  bags  in  which  the  cement  was 
packed,  as  well  as  a finer  weave  of  goods  for  the  market. 

As  the  general  features  of  the  industry  were  outlined, 
the  accountant  followed  carefully,  forming  his  plan  for 
a system  as  he  learned  each  new  detail.  At  the  end  of 
the  consultation  he  had  his  system  well  in  mind.  As  an 
afterthought,  however,  the  president  casually  remarked : 

“By  the  way,  it  is  a peculiar  fact  that  it  costs  more 
to  weave  short  staple  cotton  than  long  staple.  Different 
and  better  machines  have  to  be  used,  in  spite  of  the  fact 
that  the  finished  product  is  not  so  good.” 

This  casual  statement  made  necessary  a complete 
change  in  the  accountant’s  plans  for  a factory  system. 
He  had  not  counted  on  this  factor  of  differing  costs  of 
production  for  different  kinds  of  raw  material.  He  saw 
instantly  that  the  cost  system  he  had  planned  would 
need  to  be  fundamentally  altered  to  meet  a condition 
which  the  owner  of  the  business  thought  insignificant. 


MANAGING  COSTS 


43 


Little  details  like  this  often  throw  what  seem  to  be 
perfectly  devised  cost  systems  off  the  track  after  a few 
weeks  or  months.  To  devise  a satisfactory  system  for 
yonr  particular  business,  you  must  take  into  considera- 
tion every  detail  of  manufacture,  or  somewhere  you  will 
run  into  a snag.  You  cannot  devise  cost  systems  on  cut 
and  dried  plans. 

REVISING  cost  systems  by  “rule  of  thumb ” methods 
is  one  reason  why  some  of  them  fail — no  two  plants 
are  exactly  alike  in  all  their  requirements . 

Failure  of  systems  to  work  once  they  are  installed  is 
a not  infrequent  complaint,  and  the  reasons  are  three- 
fold : first,  they  are  improperly  devised ; second,  they  are 
operated  by  incompetent  employees;  third,  they  are 
supervised  by  incompetent  owners. 

Many  so-called  system  devisers  have  a 4 ‘rule  of 
thumb  ’ ’ plan  for  the  routine  of  a cost  system.  They  go 
to  a pigeon  hole  or  cabinet,  pull  out  an  envelope,  and 
the  system  is  perfected.  They  employ  a few  good  book- 
keepers or  chartered  accountants,  and  give  them  some 
lessons  on  how  to  conduct  their  particular  cost  finding 
machinery.  In  a short  time  the  systems  die  a natural 
death,  or  receive  a thorough  revision  from  someone  hav- 
ing more  common  sense  than  undigested  theory. 

More  systems  fail  through  incompetent  devisers  than 
through  any  other  one  cause.  It  is  absurd  to  presume 
that  a graduate  from  a business  college  or  correspond- 
ence school  can  take  a few  lessons  from  an  accountant 
and  then  devise  and  install  a good  cost  system.  He 
must  have  practical  experience  as  well  as  theory. 

To  that  theory  and  practice  must  be  added,  as  in  all 
affairs,  brains  and  judgment.  A case  in  point.  A young 
man  for  a number  of  years  made  up  cost  sheets  for  a 


44 


PLANNING  TO  KNOW  COSTS 


large  corporation.  He  filled  them  in  with  figures  up  to  a 
certain  point,  and  then  forwarded  them  to  the  general 
office  where  they  were  finished.  The  young  man,  having 
a slight  knowledge  of  bookkeeping,  thought  he  was  a cost 
accountant,  so  he  left  his  position.  His  employer  charit- 
ably gave  him  a letter  lauding  his  ability,  and  he 
branched  out  for  himself.  After  taking  a few  lessons 
from  an  accountant  he  then  modeled  all  of  his  work  upon 
the  one  small  phase  of  cost  keeping  which  he  had  been 
doing  all  his  life.  Naturally,  his  systems  failed  miser- 
ably except  in  cases  where  they  were  rescued  by  real 
experts. 

Other  kinds  of  “systematizers”  are  more  interested  in 
the  sale  of  stationery  and  supplies  than  in  the  actual 
efficiency  of  their  systems.  They  often  place  such  high 
prices  upon  their  work  that  few  concerns  can  afford  to 
pay  for  more  than  a hurried  examination  of  their  busi- 
ness. The  result  is  that  they  attempt  to  do  in  a week 
what  should  take  months,  and  create  a system  that  may 
be  correct  in  general  outline  but  lacks  some  important 
detail.  Eventually  the  firm  must  either  pay  for  an 
expert ’s  services  to  straighten  matters  out,  or  the  system 
is  branded  as  no  good  and  thrown  out. 

Chief  among  the  faults  of  cost  systems  are  their  com- 
plicated appearance  and  the  high  cost  of  installing  and 
maintaining  them.  These  faults  are  common  among 
systems  installed  by  men  who  are  theorists  only.  They 
talk  glibly  of  “production  and  non-production  hours,” 
“burden/’  and  other  technical  phrases,  but  their 
schemes  are  not  always  practical.  Here  is  a case  in 
point. 

A large  furniture  factory  bought  a high-priced  sys- 
tem, including  nearly  one  hundred  forms,  numerous 
binders,  books  and  files.  The  explanation  of  their  use,  in 


MANAGING  COSTS 


45 


typewritten  form,  made  a volume  in  itself.  In  sheer 
desperation  the  firm  employed  the  deviser  at  a high 
salary  as  auditor  so  that  they  could  get  the  system  to 
work.  The  auditor,  at  great  expense  and  labor,  finally 
exhibited  his  costs  to  the  sales  manager,  who  was  a 
thoroughly  practical  man  and  told  the  auditor  frankly 
that  the  costs  were  wrong — and  proved  it  to  him. 

In  another  case  a musical  instrument  maker  was  will- 
ing to  pay  for  a cost  accountant’s  time  at  a specified 
salary  if  he  could  get  results.  He  was  successful  in 
collecting  costs  but  he  added  so  much  expense  in  clerical 
help  and  stationery  that  the  employer  balked. 

In  neither  of  the  above  cases  did  common  sense  rule. 
The  devising  experts  in  each  case  got  the  rates  they  de- 
manded. But,  as  they  guaranteed  results  only  when 
they  installed  their  systems  at  their  regular  rates  they 
were  content  with  failure.  Such  incidents  bring  ac- 
countants and  systems  generally  under  condemnation, 
whereas,  if  the  buyer  had  been  wise,  or  the  seller  honest, 
there  would  have  been  no  failure  in  either  instance. 

HOSTILITY  of  employees,  or  their  incompetence , 
may  ruin  a well-devised  system — their  sympathetic 
help  must  he  secured  in  order  to  obtain  results . 

(When  a system  is  once  installed  incompetent  em- 
ployees may  kill  it,  no  matter  how  well  devised  it  is. 
Very  often  the  system  proves  too  complicated  for  them, 
and  often  there  is  some  other  reason  why  they  are  not 
able  to  handle  it  properly. 

When  you  put  in  a cost  system  you  may  antagonize 
two  men;  one  is  the  head  bookkeeper,  the  other  the 
factory  superintendent.  The  first  receives  the  impres- 
sion that  he  is  thought  incompetent  or  he  would  have 
arrived  at  some  cost  system  himself.  He  is  naturally 


46 


PLANNING  TO  KNOW  COSTS 


■unwilling  to  admit  his  inability,  so  he  tries  to  prove  the 
new  system  unsuitable  or  even  harmful. 

If  he  is  an  old  and  faithful  employee,  perhaps  you  are 
inclined  to  take  his  word  in  preference  to  that  of  the 
hired  accountant,  and  the  verdict  that  ‘ ‘ the  system  is  no 
good,”  4 ‘it  won't  work,”  “it  is  too  complicated,”  or 
“too  expensive,”  is  the  result.  In  time,  the  bookkeeper 
works  out  some  system  or  you  go  back  to  guessing  the 
costs.  If  a superintendent  or  foreman  is  incompetent, 
or  if  he  is  negligent  and  careless,  he  is  very  apt  to 
muddle  up  reports  so  that  no  cost  accountant  can  get 
accurate  figures  on  which  to  base  his  work.  In  either 
case,  if  you  value  his  word  highly  enough,  the  system  is 
a failure. 

As  an  example  in  point  a large  corporation  was  using 
a perpetual  inventory  system  and  it  was  compelled,  at 
the  end  of  its  fiscal  year,  to  write  off  $250,000  to  loss 
because  the  ledger  showed  material  on  hand  valued  at 
that  amount.  As  a matter  of  fact,  there  was  no  such 
material  on  hand.  The  cost  man  had  based  his  sheets  on 
reports  sent  in  by  the  superintendent;  he  saw  that  they 
were  wrong  and  called  attention  to  them  from  time  to 
time.  No  heed  was  given  to  him,  however,  and  finally 
he  was  discharged  by  his  department  and  the  superin- 
tendent promoted  by  his  superior  officer.  This  instance 
shows  incompetence  in  both  employee  and  employer. 

The  average  owner  knows  little  about  the  details  of 
the  work  in  his  accounting  department.  Proof  of  this  is 
found  in  the  daily  failures  in  every  kind  of  business. 
If  owners  knew  even  approximately  the  cost  of  manu- 
facturing, they  could  better  judge  whether  to  go  into 
business  or  stay  out.  The  average  man  puts  money  into 
a business  proposition  that  looks  good  at  first  glance. 
Only  too  often  he  overlooks  some  vital  consideration.  He 


MANAGING  COSTS 


47 


is  perhaps  too  ‘ 4 economical7 ’ to  employ  a competent  office 
man,  and  thus  his  system  fails  because  he  does  not  ade- 
quately support  it. 

Most  incompetent  are  those  owners  who  are  unfair  to 
their  employees.  As  a rule  the  word  of  a foreman  or 
superintendent  is  preferred  to  that  of  a cost  man ; when 
it  is  a question  whether  to  let  the  practical  mechanic  go 
or  show  up  the  costs  accurately,  the  system  is  generally 
the  one  to  suffer. 

In  a manufacturing  town  near  Chicago  the  business 
manager  of  a concern  said  he  could  not  afford  to  let 
bookkeepers  interfere  with  the  operations  of  the  factory 
by  discharging  (as  he  must  have  done  if  he  had  put  in 
a cost  system)  four  or  five  foremen  who  had  been  with 
him  for  years  and  were  unwilling  to  bother  to  make  up 
reports  for  the  cost  department. 

Another  class  of  incompetent  owners  depend  entirely 
upon  their  employees,  yet  are  not  able  to  criticise  their 
work  intelligently.  They  are  just  as  unfair  as  those  who 
make  their  dependents  fear  them.  Such  a course  does 
not  compel  results.  The  fear  of  censure  or  discharge  is 
held  over  the  men  constantly.  Their  confidence  is  never 
asked  and  of  course  never  offered. 

In  planning  a system,  do  not)  disregard  local  condi- 
tions and  devise  something  so  ideal  that  it  cannot  be 
applied  in  practice.  Do  not  try  to  get  accurate  time 
records  or  piece  work  costs  by  depending  upon  ignorant 
workmen  to  fill  out  complicated  reports,  or  allowing  them 
to  turn  in  without  verification  their  own  count  of  piece 
work.  Collusion  is  certain ; padded  pay  rolls  and  heavy 
costs  will  bring  definite  and  unsatisfactory  results.  Noth- 
ing will  kill  a cost  system  so  surely  as  this.  The  big 
question  for  any  system  to  settle  is  how  to  get  proper 
results  from  workmen.  Time  clocks  and  checks  of  divers 


48 


PLANNING  TO  KNOW  COSTS 


kinds  are  in  use.  A correct  system  will  do  much  to  cure 
the  ills  that  arise,  but  you  can  do  just  as  much  or  more 
by  winning  the  loyal  cooperation  of  your  men. 

To  get  good  results  from  a cost  system  it  is  essential  to 
consider  harmony  of  interests.  If  your  superintendent 
is  in  any  way  opposed  to  the  new  system,  teach  him  the 
advantage  of  modern  methods.  If  he  is  reliable  and 
capable,  a cost  system  is  more  valuable  to  him  than  to 
any  other  individual,  because  it  shows  him  where  the 
leaks  are ; blame  goes  where  it  belongs,  and  satisfactory 
remedies  can  be  applied.  Your  bookkeeper,  too,  will 
welcome  the  knowledge  that  an  expert  can  give  him,  for 
he  himself  may  in  time  become  an  expert,  or  at  least 
learn  enough  to  make  himself  more  valuable,  not  only 
to  you  but  also  to  himself.  Your  fellow  officers,  too, 
must  be  in  harmony  in  desiring  certain  results  and  in 
being  willing  to  pay  for  them. 

REPORTS  of  time , materials  and  expense  that  bring 
cost  data  to  the  accounting  department — the  books 
necessary  for  the  gathering  of  final  results, 

^Good  bookkeeping,  an  accurate  inventory  and  an  easy 
way  of  bringing  necessary  data  to  the  cost  clerks  are  the 
basis  of  any  cost  system.  Each  concern  differs  from 
every  other,  but  as  a rule  the  cost  system  should  not  be 
allowed  to  interfere  with  the  general  accounting. 
Especially  is  this  true  of  a moderate  sized  plant  where 
constant  economy  is  the  watchword.  Cost  keeping  and 
bookkeeping  in  such  a plant  can  be  closely  bound  to- 
gether, and  one  need  not  interfere  with  the  other. 

To  carry  on  a perpetual  inventory  your  purchasing 
and  receiving  departments  must  supply  the  accounting 
department  with  accurate  reports  of  materials  received. 
Let  the  factory  show  an  accurate  account  of  all  supplies 


MANAGING  COSTS 


49 


and  materials  used  or  on  hand  and  the  amount  of  labor 
expended  on  them.  Your  inventory  ledger  will  then 
show  not  only  the  value  in  dollars  and  cents  of  charges 
and  credits,  but  will  place  before  you  the  quantities 
received  and  used.  By  keeping  a ledger  inventory  and 
having  your  finger  on  materials  all  the  time,  you  can 
make  adjustments  as  required,  and  locate  the  cause  of 
errors.  The  saving  effected  by  the  use  of  a book  in- 
ventory is  worth  thousands  of  dollars  to  firms  which 
spend  that  amount  each  year  in  weighing  up  material 
on  hand. 

Whether  you  depend  entirely  on  a timekeeper  or  use 
time  slips  filled  out  by  workmen,  you  must  make  an 
accurate  division  of  all  labor  so  that  the  finished  product 
is  charged  as  far  as  possible  with  all  factory  costs. 

If  your  factory  is  turning  out  only  one  product,  you 
will  find  it  easy  to  add  the  overhead  expenses  to  the  raw 
material  and  factory  charges.  If  you  manufacture  a 
diversity  of  products  and  various  kinds  of  machines,  then 
you  must  devise  a more  elaborate  scheme  so  as  to  arrive 
at  a comparison  of  results,  and  show  cost  by  depart- 
ments, machines  or  parts. 

In  your  business  you;  may  find  it  convenient  to  cut 
down  on  the  number  of  books,  or  add  to  them.  Above 
all,  use  common  sense  and  judgment,  and  adapt  your 
system  to  your  particular  requirements. 

To  operate  your  system  completely,  you  must  arrive 
at  the  cost  of  sales  and  the  proportion  of  general  ex- 
penses to  be  borne  by  each  process  of  manufacture. 
Some  kinds  of  business  are  so  simple  that,  if  monthly 
results  are  desired,  you  can  obtain  the  just  proportion 
of  fixed  charges  by  dividing  the  total  yearly  amount  by 
twelve.  Other  kinds  of  business  are  so  complicated  that 
it  is  necessary  to  follow  the  piece  work  through  the  fac- 


50 


PLANNING  TO  KNOW  COSTS 


tory  and  keep  an  accurate  record  of  the  production 
costs  in  each  department,  using  the  amount  of  direct 
labor  as  the  basis  for  pro-rating  all  overhead  expense. 
In  any  case  the  correct  operation  of  your  cost  system  is 
not  a cut-and-dried  proposition,  but  a matter  of  observa- 
tion, judgment  and  constant  vigilance. 

The  same  rules  apply  to  cost  systems  that  hold  good 
for  other  systems.  If  your  cost  keeping  machinery  is 
to  prove  profitable  and  of  time  and  labor-saving  value, 
it  must  be  sufficiently  elastic  to  meet  any  emergency ; it 
must  be  adjustable  so  that  its  installation  does  not  inter- 
fere with  the  rest  of  the  bookkeeping  routine.  Give  your 
cost  system  these  qualities  and  it  will  save  confusion  and 
preserve  the  good  will  of  your  factory  and  office  force. 


'T'HE  record  of  what  was  done  last  year  will  not  produce 
*“■  increased  dividends  next  year , if  it  is  only  a record  and 
no  further  use  is  made  of  it.  By  scientific  accounting  the 
manufacturer  scans  the  details  of  his  business  with  a vision 
multiplied  many  times.  He  looks  through  the  accounts  as 
a mariner  looks  through  his  reef-finding  binoculars . 


— James  Logan 

Chairman  Executive  Board,  United  States  Envelope  Company 


V 


KEEPING  TAB  ON  EXPENSE 

By  Daniel  V.  Casey 


WHEN  I tackle  a new  sales  problem,  I turn  first  to 
my  record  of  costs.  ‘Are  they  right V I ask.  ‘Am 
I getting  the  utmost  of  quality,  output  and  customer 
service  for  every  dollar  expended?  How  do  my  ex- 
pense percentages  compare  with  last  week’s,  last  month’s, 
last  year’s?’  If  the  answer  is  satisfactory — if  I find  no 
leaks,  no  wastes,  no  unnecessary  frills,  I know  my  footing 
is  safe.  The  rest  I can  trust  to  salesmanship.” 

Thus  the  owner-executive  of  a thrifty  young  business 
phrased  his  idea  of  the  constructive  use  of  costs.  To 
him  the  gathering  of  expense  items  meant  much  more 
than  a basis  for  figuring  prices  and  computing  profits. 
He  wanted  the  facts  for  that  purpose.  He  took  care  to 
keep  track  of  every  obscure  unit  of  outlay — even  to  the 
weekly  dollar  allowed  for  feeding  the  night  watchman’s 
dog.  They  were  all  included  in  his  selling  price ; for  he 
had  learned  amid  the  wreckage  of  another  industry  that 
untagged  expenses  at  their  best  are  profits  gone  astray 
and  at  their  worst  deadly  drains  on  business  vitality. 

His  cost  sheet  was  more,  however,  than  an  array  of  dry 
— and  sometimes  disagreeable — facts.  By  analyzing, 
tabulating,  reducing  results  to  percentages  and  com- 
paring these  with  past  performances  also  reduced  to 
percentages,  he  turned  his  records  into  a live  factor  in 


52 


PLANNING  TO  KNOW  COSTS 


the  building  of  his  business,  not  only  when  a sales 
emergency  called  for  a test  of  his  margin  and  resources, 
but  daily  in  the  balancing,  adjusting  and  speeding  up 
of  his  factory-and-sales  machine. 

By  this  aid  he  marked  the  slightest  variation  from 
normal — whether  a slump  or  increase  in  production,  in 
efficiency,  in  costs.  Noting  these,  the  causes  were  easily 
traced ; the  fault  or  extravagant  practice  corrected ; the 
extra-effective  method  passed  along  to  other  depart- 
ments where  it  could  be  applied.  Comparison  like  this 
is  a two-edged  sword  in  cutting  costs — lopping  off  the 
wasteful  activity,  trimming  down  the  efficient  one  by 
pointing  a still  more  economical  way. 

FUNDAMENTAL  rules  to  observe  in  tagging  ex- 
pense items  and  bringing  them  all  into  the  cost 
report  for  proper  distribution  and  efficient  comparison . 

Getting  in  all  the  items  of  expense  is  the  beginning 
of  any  good  cost  system.  Not  less  essential  is  the  second 
step ; charge  every  outlay  in  its  proper  place.  Merely  to 
“play  safe”  you  must  observe  three  fundamental  rules. 

First:  In  your  accounting  treat  your  business  with 
no  more  consideration  than  you  show  a customer — as  if 
you  had  no  personal  interest  in  it  yourself.  Charge  it 
with  every  expense  incurred — not  merely  the  principal 
items,  the  direct  expenditures,  but  every  item. 

.Charge  for  your  own  services,  for  wear  and  tear  on 
machinery,  for  depreciation  of  equipment,  for  deteriora- 
tion of  raw  and  finished  stock,  for  rent.  Your  business 
owes  you  a certain  sum  for  these  accounts.  They  are  not 
direct  expenditures — money  actually  paid  out.  But  they 
are  none  the  less  actual  expenses  which  the  business 
must  pay  or  you  must  settle  out  of  your  profits.  Each  of 
these  items  is  an  expense  just  as  truly  as  the  pay  roll  you 


ELUSIVE  EXPENSES 


53 


meet  or  the  merchandise,  materials  or  supplies  you  buy. 

Second : Treat  every  sale  as  you  would  treat  a depart- 
ment in  your  business.  Make  it  stand  its  share  of  the 
burden — not  merely  actual  cost  of  labor  and  material, 
plus  expected  profit — but  also  its  proper  proportion  of 
your  running  expense.  Just  as  your  total  receipts  must 
carry  the  burden  of  all  expenses,  be  sure  the  selling 
price  in  each  sale  bears  its  exact  proportion.  Your  cost 
accounting  system — simple  or  complex — should  show  you 
what  this  proportion  is. 

Third : Prove  these  two  operations  against  each  other. 
Your  ledger  will  show  the  total  of  profits  on  all  sales. 
See  that  this  balances  with  the  total  of  profits  on  indi- 
vidual sales,  analyzed  by  departments.  If  it  does  and  if 
the  percentage  of  profit  is  what  you  expected  it  to  be, 
then  the  profit  you  figured  has  been  actually  made . If 
the  totals  do  not  balance,  it  is  because  you  have  failed  to 
include  all  your  running  expenses  and  profits  have  been 
absorbed  by  the  neglected  items. 

Tagging  and  keeping  track  of  occasional  expenditures 
is  a task  baffling  to  many  executives,  otherwise  master- 
ful. Contrasted  with  the  outlay  for  stock,  labor  and  the 
like,  any  one  of  the  items  seems  insignificant — the  price 
of  tickets  to  an  organization  entertainment,  the  express 
or  teaming  charge  on  a belated  delivery,  the  repairs  of 
damage  to  merchandise  returned  by  a customer,  the  cost 
of  a new  fixture  or  hand  tool ; the  list  could  bo  extended 
to  many  pages. 

All  of  these  may  be  legitimate  and  necessary  charger* 
on  the  business.  The  trouble  is  they  are  not  always 
charged.  They  do  not  enter  into  the  selling  price  of  pro- 
duct or  merchandise.  Brought  together,  their  sum 
might  easily  represent  a substantial  profit  for  the  year 
— but  a profit  actually  thrown  away.  For  the  customers 


54 


PLANNING  TO  KNOW  COSTS 


who  benefit  never  know  that  they  bought  their  goods 
for  less  than  cost,  that  the  seller  paid  for  the  privilege 
of  serving  them. 

Nor  are  these  lost  units  of  outlay  always  small.  There 
are  hundreds  of  merchants  and  not  a few  manufactur- 
ers who  disregard,  in  figuring  up  their  costs,  such  im- 
portant elements  as  rent  for  their  real  estate  and  ade- 
quate salaries  for  themselves  and  kinsfolk  employed — 
both  virtual  gifts  to  an  ungrateful  business. 

GETTING  all  expenses  into  the  cost  record  requires 
careful  attention — the  small  or  hidden  item  is 
liable  to  escape  a purely  casual  classification . 

Harder  still  to  get  into  the  tally  are  payments  charged 
to  capital  accounts  though  rightly  chargeable  to  running 
expenses.  More  than  one  enterprise  makes  a fine  exhibit 
of  resources  until  the  shock  of  some  sudden  reverse 
brings  down  its  house  of  cards.  Then,  under  the  scrutiny 
of  a trained  accountant,  the  bills  receivable  discover  two 
or  three  bad  accounts  which  could  have  been  carried 
along  as  assets  only  by  blind  pride  or  reluctance  to  face 
the  truth;  the  stock  on  hand  dwindles  in  value  as  de- 
preciation is  impartially  assessed;  the  new  equipment 
listed  turns  out  to  be  chiefly  replacements  and  repairs. 

The  pressure  is  all  towards  self-deception  or  optim- 
ism in  accounting.  When  the  federal  corporation  tax  law 
brought  net  incomes,  costs  and  valuations  into  the  lime- 
light, the  junior  partner  of  an  old,  highly  rated  “ qual- 
ity’ ’ house  risked  an  absolute  break  with  his  chief  to 
force  a realignment  of  accounts  and  adoption  of  a sound 
cost  system.  The  firm  would  have  to  pay  no  tax,  but  agi- 
tation of  the  law  had  turned  the  young  man’s  attention 
from  sales  to  accounting  and  financing. 

The  results  of  a quiet  inquiry  alarmed  him.  His 


ELUSIVE  EXPENSES 


55 


senior  ridiculed  these — until  they  were  analyzed  and 
proved  for  him.  Then  he  argued  that  the  proposed 
changes  would  subtract  so  much  from  apparent  re- 
sources that  their  credit  at  the  bank  would  suffer,  their 
standing  in  the  trade  be  injured.  But  the  younger  man 
persisted.  So  the  warehouses  were  cleared  of  “slow” 
stock — remainders  of  pet  models  on  which  the  elder  man 
could  never  be  induced  to  accept  a loss  inventory  at  less 
than  original  cost.  Process  stock  was  treated  in  the 
same  drastic  fashion.  An  accumulation  of  $12,000  in  un- 
collectible accounts  was  charged  off  the  books.  The  al- 
lowance for  depreciation  of  factory  buildings  and  ma- 
chinery was  nearly  one-third  of  the  valuation  in  the 
last  anual  statement. 

When  the  readjustments  were  completed,  the  firm's 
resources  had  shrunk  by  $57,000.  The  banks,  apprised 
of  the  slashing  in  process  and  the  purpose  behind  it,  ac- 
cepted the  scaling  down  of  their  security  and  continued 
their  loans.  Suppliers  of  raw  materials  had  no  fault  to 
find,  since  the  firm  voluntarily  reduced  the  credits  it  re- 
quired by  buying  on  a schedule  framed  for  immediate 
needs.  Meantime  the  factory  organization,  shocked  out  of 
its  complacency  by  the  housecleaning, . pared  costs  right 
and  left,  invented  short  cuts,  discovered  endless  econ- 
omies in  time,  power  and  materials. 

To  such  effect,  indeed,  that  the  close  of  the  business 
year,  May  31st,  showed  an  increase  in  the  firm’s  sur- 
plus of  $9,000  over  the  previous  twelve-month.  This, 
with  rent,  depreciation  on  equipment  and  stock  and  a 
dozen  other  elusive  expenses  deducted.  Prices  had  not 
been  raised;  quality  had  been  maintained.  But  with 
every  outlay  tagged  and  under  observation,  leaks  and 
losses  and  slip-shod  practice  had  no  chance  to  escape  de- 
tection and  elimination.  Several  unprofitable  specialties 


56 


PLANNING  TO  KNOW  COSTS 


on  the  edge  of  another  field  were  abandoned  and  produc- 
tion concentrated  on  the  better-paying  lines.  Customers 
were  given  the  same  value  as  before,  but  the  factory 
drain-pipe  tapping  the  firm’s  resources  and  profits  was 
plugged  for  keeps. 

It  is  no  exaggeration  to  call  this  situation  typical. 
Supply  certain  conditions — the  prestige  of  an  established 
name,  the  lack  of  aggressive  competition,  the  protection 
afforded  by  patents  or  secret  processes — and  it  is  natural 
for  a business  to  slip  into  easy  ways  and  measure  profit 
and  progress  by  volume  of  sales  rather  than  by  net  re- 
turns in  hard  cash.  Particularly  if  it  be  a one-man  enter- 
prise, with  the  owner  absorbed  in  selling,  the  develop- 
ment of  new  products,  or  the  maintenance  of  quality. 
Because  costs  are  not  a life-or-death  matter — as  in  the 
business  without  protection  other  than  its  manager’s 
energy  and  acumen — expenses  are  not  tracked  back 
through  petty  wastes,  and  the  extravagant  methods 
forced  into  line  with  sound  practice  and  economy. 

Twice  in  every  three  cases,  also,  the  cost  and  account- 
ing methods  of  the  growing  factory  or  store  are  the  last 
to  be  adjusted  to  the  quickened  pace  of  the  business.  At 
the  start,  the  manager’s  personal  supervision  of  details 
informs  him  of  every  outgoing  cent  and  keeps  cost  before 
him  as  his  most  important  daily  concern.  Every  ex- 
penditure is  watched  jealously,  entered,  studied  with  a 
view  to  lessening  it  or  cutting  it  out  altogether — and  so 
he  gets  his  cost  basis  down  to  bed-rock.  When  expansion 
comes,  his  assurance  as  to  costs  remains  until  some  emer- 
gency or  outside  impulse  undeceives  him  and  drives 
home  the  need  of  a system  for  keeping  tab  on  expenses 
to  replace  his  former  personal  touch  and  first-hand 
knowledge. 

In  some  progressive  industries  and  trades,  this  impulse 


ELUSIVE  EXPENSES 


57 


has  come  from  the  general  trade  association.  The  Na- 
tional Association  of  Stove  Manufacturers,  for  example, 
undertook  several  years  ago  to  develop  a uniform  cost 
system.  The  cost  sheets  of  several  companies  were  ana- 
lyzed and  compared,  the  red  tape  cut  out  and  only  the 
essential  elements  preserved.  The  result  was  a system 
which  suggested  all  the  items  of  expense  in  the  making 
of  a stove  and  provided  an  easy  way  to  record  and  sum- 
marize them.  Tried  out  by  various  members,  the  com- 
posite system  stood  the  test  and  was  approved  by  the 
association. 

Intensive  analysis  of  the  elements  entering  into  costs 
is  the  vital  thing  in  this  model  system.  Every  casting, 
rivet  and  washer  used  in  construction  is  priced  and  in- 
cluded in  the  general  total.  Processes  are  segregated 
and,  like  materials  and  fittings,  the  labor  and  manu- 
facturing outlay  on  each  is  put  down  in  dollars  and 
cents. 

PERCENTAGE  division  of  “burden”  makes  each 
department  of  the  business  bear  its  proper  proportion 
of  the  total  of  all  items  entering  into  expense . 

Expense — the  elusive  “overhead”  or  “burden”  which 
covers  a host  of  wastes  and  neglected  small  outlays  in 
many  businesses — is  figured  by  percentages.  It  is  as- 
sessed by  departments  and  even  by  operations,  the  per- 
centages used  having  been  determined  from  test  runs 
and  past  records.  In  the  foundry,  two  allowances  are 
made  before  the  total  cost  of  castings  is  computed. 
Finally  the  percentage  for  general  foundry  expense  is 
added  and  the  castings  move  on  into  the  shops — where 
again  they  are  charged  with  labor  costs  and  expense 
percentages.  In  like  manner  provision  is  made  for  keep- 
ing track  of  other  materials  in  process,  including  four 


58 


PLANNING  TO  KNOW  COSTS 


grades  of  steel,  three  classes  of  iron  and  forty  kinds  of 
fittings  and  finishing  materials. 

The  percentage  for  general  manufacturing  expense  is 
not  assessed  until  the  stove  is  assembled,  blacked  and 
crated  for  shipment.  Then  in  cumulative  succession  are 
charged  loss  and  waste,,  general  distributing  expense, 
salesman’s  expense  and  finally  discounts  and  rebates  to 
dealers.  All  of  these  are  worked  out  as  percentages, 
based1  on  past  operations.  Pig  iron,  the  one  factor  in 
production  subject  to  constant  fluctuation,  is  set  down  at 
the  arbitrary  price  of  $16  a ton  and  is  corrected  by  add- 
ing or  deducting  the  market  difference  for  net  weight  of 
castings. 

“ Average  cost  when  paid  for”  is  the  final  and  most 
significant  entry.  It  is  the  sum  of  all  the  units  of  ex- 
pense collected  above,  from  the  pig  iron  in  the  castings 
and  the  cost  of  melting  to  the  discounts  and  other  al- 
lowances given  the  dealer.  That  this  is  the  correct  basis 
on  which  profit  and  selling  price  should  be  figured  goes 
without  saying.  Yet  in  how  many  factories  or  com- 
mercial houses — outside  the  big  organizations  and  a few 
intensely  competitive  fields — could  the  head  or  the  sales 
manager  tell  you  accurately  what  is  the  “average  cost 
when  paid  for”  of  any  article  produced  or  sold?  “Ware- 
house cost,  ’ ’ four  or  five  stations  up  the  line,  is  the  usual 
base  of  operations. 

Like  the  standard  system  devised  by  the  employing 
printers  of  the  country,  the  stovemakers’  effort  was  not 
directed  towards  the  fixing  of  uniform  prices.  The 
printers  worked  out  and  recommended  the  various  per- 
centages of  depreciation  to  be  charged  on  machines,  type 
and  equipment,  the  rate  to  be  deducted  for  bad  debts  and 
the  profit  percentage  to  be  added  to  basic  costs.  The 
stove  association,  producing  individual  lines,  stopped 


ELUSIVE  EXPENSES 


59 


with  a single  recommendation,  suggesting  that  one  per 
cent  be  added  to  warehouse  cost  to  take  care  of  general 
factory  loss  and  waste. 

Keeping  track  of  expenses  is  not  an  end — only  a means 
to  an  end.  One  industrial  leader  gave  it  as  his  opinion 
recently  that  a cost  system  was  good  only  when  it 
showed  where  to  use  the  pruning  knife.  It  is  not  enough 
to  know  how  to  get  your  expense  figures  and  to  know 
what  they  are.  You  need  to  know  what  they  should  be 
and  how  to  cut  them,  without  interrupting  the  rhythm  of 
production  or  sacrificing  quality. 

What,  then,  should  a good  cost  system  show?  Here  is 
the  way  a well  known  expert  accountant  summarized  its 
purpose  in  an  address  before  the  national  convention  of 
box  makers: 

(1)  Determine  whether  all  materials  purchased 
have  been  accounted  for. 

(2)  Determine  whether  buying  has  been  judi- 
cious — in  prices  and  quality,  and  in  amount  of 
stock  maintained,  as  shown  by  annual  turnovers. 

(3)  By  close  analysis  and  comparison  of  the 
various  items  of  cost — material,  labor  and  expense 
— subdivided  by  departments,  processes,  or  indi- 
vidual jobs  or  contracts  ; throw  the  spotlight  upon 
the  leaks  and  make  their  correction  imperative. 

(4)  Determine  the  profit  on  different  classes  of 
work,,  goods  or  orders  so  that  effort  can  be  directed 
to  the  best-paying  lines;  also  the  profit  in  various 
plants,  departments  or  sections,  so  that  production 
can  be  concentrated  where  it  is  most  profitable 
and  the  efficiency  of  weak  departments  brought  up 
to  the  standard. 

The  head  of  an  important  wholesale  house  has  applied 
this  idea  with  remarkable  success.  He  believes  that  in- 


60 


PLANNING  TO  KNOW  COSTS 


itiative  is  just  as  necessary  in  handling  expenditures  as 
in  selling  goods,  and  that  a manager’s  chief  need  is  a 
plan  to  keep  expense  items  continually  before  him  in 
such  form  that  they  can  be  grouped  and  measured  with- 
out confusion  or  mental  strain. 

To  clinch  his  own  control  of  expense,  his  classification 
of  outlay  extends  to  fifty-three  items.  Only  one-fifth  of 
one  per  cent  of  the  company’s  expenditures  gets  into  the 
“miscellaneous”  category;  all  the  rest  are  tagged  and 
the  percentage  which  each  bears  to  sales,  to  total  expense 
and  to  profits  is  tabulated  for  quick  comparison  with 
like  records  running  back  many  years. 

“Sundry  expense,”  the  catch-all  account,  is  subdi- 
vided into  twenty-eight  items.  These  are  given  below  to 
show  how  far  the  head  of  a house  whose  transactions  run 
into  many  millions  yearly  has  proved  it  is  profitable  to 
carry  analysis  of  outgo: 


Bags,  for  traveling  men 
Cleaning  windows 
Dues  to  associations 
Elevators,  also  listed  else- 
where 
Excelsior 
Exchange 
Laundry 
Matches 

Milk,  for  cats  in  building 
Miscellaneous,  including 
items  that  cannot  be  clas- 
sified 
Nails 

Newspapers 
Packing  materials 
Petty  expense 


Paper  used  in  wrapping 
Repairs 

Rubbish,  including  cleaning 
refuse 

Safes,  in  safety  deposit  vaults 
Smoking,  covering  cigars 
given  customers  and  visi- 
tors 
Soap 

Specimens 
Specimens,  boxes 
Sprinkling 
Stencils 

Tickets  for  entertainments 
Twine 

Water,  for  drinking  tanks 
Watchman  service 


The  advantage  of  carrying  the  subdivision  down  to 
specific  units  of  expenditure  is  apparent.  The  knowledge 
that  your  sundry  expense  has  climbed  abnormally 


ELUSIVE  EXPENSES 


61 


possesses  little  value  unless  you  can  trace  the  increase  to 
the  specific  items  where  waste  has  crept  in  and  stop  it. 

Comparison  in  dollars  and  cents  tells  only  part  of  the 
expense  story,  may  even  be  misleading.  To  keep  the 
various  units  at  their  proper  levels  and  afford  a real 
basis  for  comparison,  they  must  be  reduced  to  ratios 
founded  on  the  productive  factors  in  the  business.  Where 
product  is  uniform,  it  is  enough  to  work  out  what  each 
item  adds  to  hour-cost,  or  cost  per  unit  of  output  or 
sales. 


CONTINUAL  watchfulness,  repeated  comparisons 
of  results  and  prompt  correction  of  all  abuses — 
these  are  things  that  pave  the  way  to  bigger  business . 

For  the  house  making  or  handling  many  or  varied 
lines,  expenditures  must  be  reduced  to  percentage  ratios 
before  any  intelligent  comparison  can  be  made.  But 
percentages  are  highly  dangerous  unless  they  represent 
actual  figures  verified  by  frequent  tests,  not  mere  guesses. 
The  manager  who  knows  that  his  basic  costs  for  the  past 
year  have  been  forty-six  per  cent,  his  sales  expense  six- 
teen per  cent,  his  “overhead”  twenty  per  cent,  and  his 
losses  and  emergency  expenses  eight  per  cent,  can  be 
certain,  of  course,  that  his  net  was  ten  per  cent.  But  if 
he  attempts  to  apply  these  percentages,  uncorrected,  all 
through  the  coming  year,  he  is  almost  certain  to  find  his 
profit  less  than  ten  per  cent.  His  volume  may  decrease, 
unanticipated  losses  may  ensue,  competition  may  boost 
selling  costs  or  a score  of  contingencies  change  his  per- 
centages and  make  inroads  on  his  net  returns. 

Working  with  embalmed  ratios,  too,  he  misses  the 
building  power  which  more  progressive  managers  gain 
by  constant  pursuit,  comparison  and  correction  of  ex- 
penditures. “Playing  safe” — essential  though  it  be  for 


62 


PLANNING  TO  KNOW  COSTS 


the  man  who  does  not  know — paralyzes  sales  and  manu- 
facturing initiative.  The  executive  whose  costs  are  live, 
verified  facts  can  hold  prices  at  the  level  where  quality, 
volume  and  profit  pull  together  for  greatest  results.  Be- 
cause he  is  certain  what  his  goods  are  worth,  he  can  meet 
buyers  squarely  without  asking  or  conceding  odds.  He 
can  cut  if  cutting  becomes  necessary.  And  at  all  times 
he  can  offer  customers  maximum  values  and  make  money 
for  himself — the  two  things  imperative  on  a business 
planning  for  a tomorrow. 


T ACK  of  cost  knowledge  is  a basic  cause  of  an  unsatisfac- 
tory  inventory . Dont  figure  a job  without  having  suffi- 
cient details . Guesses  at  values , without  knowing  the  exact 
amount  of  labor  required , cause  many  losses.  Few  men, 
also,  have  a proper  knowledge  of  their  general  expense.  This 
results  in  many  a profitless  job.  The  lump  quotation , too, 
causes  heavy  losses.  All  quotations  should  be  made  on  a 
basis  of  all  work  required. 

— Charles  J.  True 

President,  True  & True  Company 


PART  II— FINDING  AND 
RECORDING  COSTS 


Our  Business  Life  Insurance 

T^WO  years  after  we  established  our  publishing 
* house,  Andrew  Carnegie  asked  me  one  day 
when  playing  golf:  “How  much  money  did  you 
make  last  month?” 

“I  don’t  know,”  I answered;  “our  statements 
are  made  out  annually.  You  can’t  get  monthly 
statements  in  the  publishing  business.” 

“If  I were  in  a business  like  that  I’d  get  out  of 
it,”  he  said.  “I  get  monthly  statements  in  my 
business  and  you  can  get  them  in  yours.” 

The  advice  did  not  fall  on  barren  ground.  The 
next  week  we  engaged  a systematizer.  That  man 
went  through  every  department,  and  he  made 
changes  in  each  one  and  kicked  up  no  end  of  a 
rumpus — but  we  get  our  monthly  reports. 

Our  system  of  reports  is  now  the  life  insurance 
of  this  business.  I can  at  last  tell  which  depart- 
ments are  dead  and  which  are  carrying  the 
burdens  of  the  departments  that  are  falling 
behind.  Much  of  the  success  of  our  company  is 
due  to  just  this  principle:  keep  the  executive  in 
touch  with  every  department . 


F.  N.  DOUBLEDAY 

President , Doubleday , Page  and  Company 


VI 


ASSEMBLING  COSTS  IN  A 
SMALL  SHOP 

By  A.  B.  Campbell,  Jr. 

Assistant  Superintendent,  Duval  Planing  Mill  Company 


ANY  good  factory  cost  system  should  accomplish  sev- 
eral purposes.  Some  of  these  things,  of  course, 
under  certain  circumstances,  are  much  more  important 
than  others.  Among  the  important  things  it  must  do, 
are  (1)  to  ascertain  the  cost  per  unit  on  each  line  of  the 
factory  product;  (2)  record  the  amount  of  time  spent 
on  each  operation,  or  each  order;  (3)  show  the  location 
in  the  plant,  and  the  condition  of  work  on  each  un- 
finished unit;  (4)  show  the  amount  of  direct  and  indirect 
labor,  and  for  what  the  direct  labor  is  used;  (5)  show 
also  the  amount  of  direct  and  indirect  materials, 
and  give  the  stage  of  development  by  departments;  (6) 
show  total  output,  average  monthly  output,  busy  time 
and  idle  time  on  each  unit  of  output  for  the  day,  week, 
or  month;  (7)  show  cost  per  hour  of  operating  each  class 
of  machines,  and  by  departments;  (8)  show  relative 
overhead  and  direct  labor  cost  per  hour  or  per  unit  in 
each  department;  and,  finally,  (9)  show  whether  each 
operation  is  increasing  or  decreasing  in  cost,  and,  in  the 
final  analysis,  whether  you  are  making  goods  at  a profit 
or  loss. 

To  sum  up  the  real  cost  of  any  order  or  unit  of  pro- 
duction, the  cost  system  must  comprehend:  (1)  the 
exact  cost  of  material  used,  (2)  the  total  amount  of 


66 


RECORDS  OF  ESSENTIALS 


direct  labor  expended,  (3)  total  amount  of  machine  ex- 
pense, (4)  total  amount  of  indirect  labor  and  supplies, 
and  (5)  proportion  of  general  expense. 

Estimating  costs  and  fixing  prices  at  the  average  wood- 
working plant  often  depends  more  or  less  upon  the 
guessing  ability  of  some  one  man.  In  many  other  in- 
stances an  elaborate  cost  system  is  installed,  which  does 
not  furnish  the  basic  information  that  has  just  been 
outlined,  because  if  any  one  of  the  items  enumerated  is 
omitted,  the  cost  cannot  be  right.  The  figuring  of  the 
exact  cost  is  reasonably  simple  compared  with  the  diffi- 
culty of  obtaining  the  correct  information  from  which 
to  do  this  figuring.  Put  your  cost  system  to  the  test  and 
see  whether  it  answers  the  nine  principal  requisites  laid 
down,  and  comprehends  the  five  factors  of  cost. 

In  a small  factory,  employing  not  more  than  one  hun- 
dred men,  it  is  comparatively  simple  to  get  reasonably 
accurate  costs ; but  as  the  shop  grows  and  develops  into 
a plant  employing  hundreds,  perhaps  thousands  of  men, 
unless  the  cost  system  is  based  on  right  principles  and 
develops  along  correct  lines,  trouble  will  eventually  be 
encountered  which  will  not  only  cost  a great  deal  of 
money,  but  will  also  upset  production. 

The  system  here  described  of  getting  cost  figures  is 
used  in  a woodworking  shop  manufacturing  a complete 
line  of  architectural  woodwork,  such  as  door  and  window 
frames,  sashes,  doors,  stair  work,  columns  and  general 
builder’s  finish,  as  well  as  such  special  work  as  is  usu- 
ally done  in  a shop  of  this  type.  It  employs  less  than 
one  hundred  men.  The  system  basically  consists  of  an 
order  board  envelope  (Figure  III),  time  ticket  (Form 
I),  and  shop  order  (Form  II). 

The  order  board  performs  several  functions:  it  is  a 
graphic  plan  board  upon  which  all  orders  in  the  shop  are 


SMALL  SHOP  COSTS 


67 


kept  in  plain  sight  until  finished ; it  acts  as  a tracer,  be- 
cause alongside  the  order  envelope  are  hung  time  ticket 
coupons  which  designate  the  progress  of  the  order 


MAKE  SVSEMOR 

ORDER  NO. 

|NDA  ON  BACK 

NflMF 

.inn 

nrr.nuFn  w/aNTrn 

RTflBTFn  riNIRUFfl 

ARTICI  ES 

RFNF.H  TIMF 

MACHINE  TIME 

OTHER  DIRECT  LABOR 

DIRECT  SUPPLIES 

MATERIALS  . _ _ 

% OF  OVERHEAD  EXPEf 

j«r 

TOTAL  COST 

FIGURE  III:  Each  unfinished  order  has  an  envelope  on  the  order  board 
and  ike  time  cards  are  hung  each  day  near  this  envelope.  The  final  card  is 
stamped  in  red , showing  that  the  order  is  completed 

through  the  shop ; and  it  acts  as  an  automatic  collector 
of  costs  on  each  order,  as  the  time  ticket  coupons,  upon 
completion  of  the  job,  are  gathered  together  in  the  en- 


68 


RECORDS  OF  ESSENTIALS 


velope  and  sent  to  the  cost  clerk.  Incidentally  it  acts  as 
an  incessant  reminder  of  delayed  orders.  The  detail  of 
operation  of  this  board  is  apparent  from  Figure  III. 

LABOR,  material  and  'production  reports  that  keep 
track  of  the  progress  on  each  job  and  gather  accurate 
data  for  the  use  of  the  cost  department . 

A daily  time  card  is  given  to  every  workman  each  day 
and  the  card  is  numbered.  On  this  card  are  entered  the 
order  numbers  worked  upon  by  him  during  that  day, 
total  time  expended,  date  and  remarks.  The  time  ticket 
is  composed  of  a number  of  coupons.  On  each  coupon  are 
printed  all  possible  operations  which  might  be  performed 
in  the  shop.  All  the  man  has  to  do  is  to  enter  the  order 
number  on  starting  a new  order,  the  time  started  and 
time  of  completing,  the  card  number,  and  draw  a line 
through  the  operation  performed. 

On  the  envelope  (Figure  III)  are  entered  the  order 
number,  name  of  customer,  the  job,  and  the  date  upon 
which  the  order  was  received,  the  date  when  delivery  is 
wanted,  time  the  job  was  started  and  the  date  upon  which 
it  was  completed,  together  with  a description  of  the  ar- 
ticles, the  direct  labor  hours  spent  on  the  job,  the  ma- 
terial required,  the  amount  of  supplies,  and  the  per 
cent  of  general  expense. 

The  coupons,  Figure  III  and  Form  I,  as  they  are 
tom  off  the  daily  time  card,  are  hung  on  the  hook 
to  the  right  of  the  envelope,  where  they  are  allowed  to 
accumulate  until  the  job  is  completed,  when  it  is  desig- 
nated by  the  word  “Completed”  stamped  on  the  last 
coupon.  Then  the  total  cost  is  figured,  after  which  the 
stubs  are  placed  in  the  envelope  and  filed  away.  The 
shop  order  (Form  II)  is  of  the  ordinary  type  and  requires 
but  little  explanation.  The  rough  cutters  check  their 


SMALL  SHOP  COSTS 


69 


work  in  Column  “R,”  machine  men  in  column  “M,” 
henchmen  in  column  “B,”  and  shipping  clerks  in  column 
“ S.  ” This  facilitates  the  cost  work. 


The  shipping  order  is  a copy  of  the  shop  order  and 
needs  no  explanation.  These  five  items  constitute  the 
purveyors  of  the  figures  from  which  the  costs  are  com- 


70 


RECORDS  OF  ESSENTIALS 


puted  and  Figure  IV  illustrates  the  method  in  which 
they  operate. 

As  each  new  job  is  received,  it  is  carefully  itemized 
and  entered  in  the  usual  loose-leaf  order  record  book. 
Shipping  orders  are  made  out  for  all  stock  items  while 
shop  orders  are  made  up  for  such  articles  as  must  be 
specially  manufactured.  All  shipping  orders,  as  shown 
by  Figure  IV,  go  directly  to  the  stock  room,  where  they 
are  filled  from  stock,  thence  to  the  shipping  room,  while 
shop  orders  go  to  the  various  foremen  and  follow  on 
through  the  mill  until  the  articles  are  shipped  or  placed 
in  the  warehouse.  So  far  as  the;  shop  orders  are  con- 
cerned, no  distinction  is  made  between  those  for  special 
work  and  those  for  stock  work  as  yet.  Every  job  is  num- 
bered and  every  order  for  that  particular  job  is  dis- 
tinguished by  that  number  followed  by  an  initial.  , 

For  instance,  an  order  for  window  frames  might  be 
marked  1749- A while  an  order  for  newels  might  be 
1749-M.  Before  an  order  leaves  the  office  an  order  en- 
velope (Figure  III)  is  prepared,  and  hung  in  its  numer- 
ical position  on  the  order  board. 

Every  morning  each  employee  is  provided  with  a daily 
time  card  (Form  I)  which  has  been  previously  prepared 
in  the  office.  This  card  is  filled  out  as  has  already  been 
explained.  Each  night  his  foreman  carefully  checks  the 
card  and  returns  it  to  the  office.  The  bookkeeper  now 
takes  all  the  cards  sent  in  by  the  various  foremen,  and 
after  the  total  time  and  the  order  numbers  shown  by  the 
coupons  are  copied  in  the  proper  places  on  the  upper 
portion  of  the  cards,  the  coupons  are  removed,  the  date 
stamped  on  each,  and  they  are  then  hung  opposite  the 
corresponding  envelopes  on  the  ord^r  board.  The  upper 
portion  of  the  card,  which  just  fits  a five-by-three-inch 
drawer,  is  filed  for  reference. 


SMALL  SHOP  COSTS 


71 


8. 


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JS  & 


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J 


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72 


RECORDS  OF  ESSENTIALS 


When  an  order  is  completed,  the  order  envelope  and 
coupons  are  removed  from  the  order  board  and  totals  of 
the  bench  time  and  the  machine  time  are  entered  on  the 
envelope.  The  total  amount  of  materials  used  is  com- 
puted from  the  cutting  bill,  allowance  being  made  for 
waste,  and  so  forth,  and  written  down  with  the  other 
items.  The  total  amount  of  indirect  labor  and  supplies 
is  entered  and  the  portion  of  overhead  expense  which 
this  order  bears  is  also  noted,  with  any  other  miscellane- 
ous expense  which  may  be  charged  directly  to  the  job. 

The  overhead  expense,  which  is  figured  on  the  direct 
labor  hours  basis,  includes  such  items  as  indirect  labor, 
repairs,  maintenance,  heating,  lighting,  rent,  taxes, 
insurance  and  depreciation*  The  total  factory  cost 
has  now  been  obtained.  The  cost  of  materials  and 
direct  labor  has  been  accounted  for,  and  all  overhead 
expense  has  been  taken  into  consideration,  so  that  the 
figure  arrived  at  represents  accurately  the  cost  of  the 
job. 


FINDING  the  essential  facts  from  the  production  data 
gathered  hy  means  of  the  order  hoard — correct 
costs  on  each  job  which  goes  through  the  shop. 

To  better  illustrate  the  workings  of  this  system,  as- 
sume that  John  Smith  has  placed  an  order  for  some  ma- 
hogany newels  of  special  design,  and  since  the  order  is 
special  it  is  of  importance  to  know  exactly  the  quantity 
of  material  used  and  amount  of  labor  expended,  the  more 
so  that  the  job  is  out  of  the  ordinary.  The  usual  shop 
order  and  cutting  bill  are  made  out  and  a corresponding 
envelope  is  hung  on  the  board.  The  order,  in  this  case, 
is,  for  example,  No.  1922-D,  and  is  now  ready  for  the 
mill.  A messenger  carries  it  to  the  first  foreman  who  is 
to  work  on  the  order. 


SMALL  SHOP  COSTS 


73 


Along  with  this  shop  order  are  the  necessary  detail 
drawings.  The  shipping  order  is  carried  to  the  stock 
room  and  the  necessary  raw  material  is  forwarded  to  the 
various  departments.  Time  coupons,  1922-D,  are  handed 
in  to  the  office  each  night  attached  to  the  men’s  time 
cards.  The  first  coupons  will  be  pink,  indicating  that 
the  rough  cutters  have  worked  on  the  order.  The  next 
set  will  be  blue,  showing  that  the  machine  men  are  busy, 
while  the  yellow  coupons,  which  follow,  make  known  the 
fact  that  the  bench  men  have  been  at  work  on  the  order 
and  that  it  will  soon  be  completed.  As  soon  as  the  job 
is  done  the  foreman  stamps  the  last  coupon  (in  this  case 
yellow)  on  the  time  ticket  of  the  last  workman  on  the 
job,  “Complete,”  so  that  when  it  is  hung  on  the  order 
board  it  is  definitely  known  that  the  job  is  done.  When 
the  newels  have  been  delivered,  the  envelope  and  coupons 
are  removed  from  the  board  and  the  actual  cost  is  de- 
termined,. as  explained. 

There  are  several  features  of  this  system  which  are 
worthy  of  mention:  in  the  first  place,  it  is  extremely 
simple;  in  the  second  place,  it  is  known  each  day  just 
what  was  done  the  day  before,  what  operations  each  man 
performed  and  how  long  it  took  him  to  perform  them, 
and  how  much  it  cost — and  it  is  possible  at  any  time  to 
tell  exactly  what  any  job  has  cost  up  to  date  and  how 
near  it  is  to  completion.  By  using  the  color  scheme,  it  is 
only  necessary  to  look  at  the  order  board  and  tell  at  a 
glance  just  what  department  was  last  to  work  on  any  one 
order.  By  comparing  the  date  of  the  last  coupon  with 
the  date  when  shipment  is  wanted,  as  shown  on  the  en- 
velope beside  it,  a back  schedule  order  may  be  traced  and 
late  shipments  reduced  to  a minimum. 

The  coupons,  when  the  work  on  an  order  is  completed, 
may  be  put  in  the  envelope  and  filed  away  for  future  in- 


74 


RECORDS  OF  ESSENTIALS 


formation.  These  envelopes  will  then  give  a definite 
basis  from  which  to  estimate  new  or  similar  work.  The 
other  advantage  is  that  it  requires  little  time,  on  the  part 
of  the  men  or  foreman.  It  greatly  reduces  the  office 
work  and  enables  the  tracing  of  orders  through  the  mill, 
comparison  of  costs,  and  the  centering  of  responsibility 
for  mistakes.  Above  all,  it  produces  the  necessary  figures 
for  determining  real  costs, 


$ 


D ECORD  making — building  up  a team  interest  in  the 
game — that's  the  basis  of  my  method  of  cutting  down 
losses  in  the  shop.  Each  department  holds  a definite  position 
in  relation  to  the  making  of  the  product.  Each  takes  a pride 
in  the  work  of  his  section.  And  when  he  sees  in  black  and 
white  the  results  of  his  efforts  to  keep  up  department  efficiency , 
that  score  helps  hold  his  interest . 


— R.  B.  Wilson 

President,  The  Chicago  Shipping  and  Receipt  Book  Company 


VII 


HOW  TO  FIND  WHAT  SMALL 
PARTS  COST 

By  J.  Earle  Riley 


IT  IS  possible  in  every  business  to  keep  accurate  labor 
and  material  costs  on  each  order  going  through  the 
factory.  Yet,  very  often  a manager  considers  it  not 
advisable  because  of  the  great  amount  of  detail  and  ex- 
pense attached  to  building  up  an  accurate  system  which 
in  itself  not  only  increases  that  cost,  but  increases  it  to 
no  advantage  because  the  final  cost,  when  once  obtained, 
is  not  worth  the  extra  money  and  effort. 

In  many  kinds  of  manufacturing  this  condition  is 
found,  but  in  none  to  a greater  extent  than  in  the  jewelry 
factory.  Consequently,  a description  of  the  difficulties 
in  such  a factory  has  suggestions  for  the  managers  of 
many  other  kinds  of  manufacturing  plants. 

Jewelry  is  marketed  on  the  basis  of  4 ‘ what  will  it  sell 
for”  rather  than  “what  did  it  cost.”  Sometimes  a 
manufacturing  jeweler  handling  a gold  and  silver  line 
has  a gross  profit  of  one  hundred  or  even  three  hundred 
per  cent.  This  profit  is  often  greater  in  the  novelty 
lines.  “With  this  fact  in  mind  what  material  difference 
does  it  make,”  says  the  average  manufacturer,  “if  one 
order  does  cost  me  more  or  less  than  my  estimated 
cost  f ’ ’ 

Moreover,  jewelry  manufacture  is  one  of  those  busi- 
nesses in  which  you  can  estimate  pretty  closely,  within  a 


76 


RECORDS  OF  ESSENTIALS 


few  cents,  the  material  and  labor  cost  of  any  line  of 
goods  when  the  factory  is  worked  under  normal  condi- 
tions. But  the  place  in  which  the  jewelry  manufacturer 
fails,  is  when  he  under-estimates  his  general  expense.  In 
the  jewelry  business,  as  in  many  other  businesses  where 
small  parts  are  made,  the  items  of  general  expense  are 
very  numerous  and  it  often  happens  that  at  least  one 
of  these  items  is  wrongly  charged. 

PECULIARITIES  which  render  it  difficult  for  the 
manufacturer  of  jewelry  to  get  accurate  costs  on  his 
product — pitfalls  which  must  he  avoided . 

In  manufacturing,  the  jeweler  changes  his  line  at  least 
three  times  a year.  The  total  number  of  patterns  in  this 
line  may  run  from  five  hundred  to  two  thousand  or  over, 
according  to  the  size  of  his  plant.  Each  time  a line  is 
changed  a great  many  patterns  have  to  be  discarded  and 
possibly  ten  to  fifty  per  cent  new  patterns  added.  In 
adding  these  new  patterns  a tool  cost  must  be  found  for 
each.  This  cost  is  very  seldom  less  than  ten  and  more 
often  is  thirty  to  fifty  dollars. 

The  clever  manufacturer  must  keep  his  tool  cost  ac- 
curately, and  proportion  it  against  his  normal  output  so 
that  each  pattern  will  carry  its  burden.  Those  patterns 
which  do  not  pay  their  own  tool  cost  should  be  discarded 
or  redesigned  so  that  they  will. 

When  a pattern  is  a “good  seller”  it  does  pay  its  tool 
cost.  In  a large  line  it  is  very  seldom  that  over  twenty 
per  cent  of  the  entire  line  are  good  sellers  any  one  sea- 
son. It  is  evident,  therefore,  that  these  good  sellers,  in 
addition  to  offsetting  and  carrying  their  own  tool  costs 
and  showing  a profit,  must  be  burdened  with  the  tool 
cost  of  the  rest  of  the  line. 

Now,  although  it  may  sound  strange,  the  majority  of 


SMALL  PART  COSTS 


77 


jewelers  are  not  able  to  tell  which  are  their  best  sellers. 
Within  the  last  few  years  two  jewelers  adopted  a card 
system  of  individual  pattern  sales.  They  now  use  this 
system  entirely  in  discarding  and  making  up  their  lines. 
They  found  the  system  necessary  because  the  salesmen 
disagreed  as  to  which  were  the  best  sellers.  After  the 
card  system  had  been  running  a season  the  men  were 
called  in  and  their  opinion  asked  on  the  selling  possi- 


marizes  costs . FORM  III  (i back  card):  This  is  the  production  order 


bilities  of  each  pattern.  The  result  was  astounding.  Pat- 
terns which  they  were  willing  to  wager  were  great 
sellers,  according  to  the  cost  record  had  not  paid  their 
tool  cost,  and  some  which  each  thought  were  poor  sellers 


78 


RECORDS  OF  ESSENTIALS 


were  making  the  profits  for  the  business.  These  manu- 
facturers now  discard  patterns  when  the  records  on  the 
sale  cards  prove  that  they  should  do  so.  In  every  busi- 
ness a simple  cost  system  has  great  value  in  this  one 
respect  of  distinguishing  between  good  and  bad  sellers. 

The  fourth  pitfall  in  estimating  small  part  costs  in  a 
jewelry  factory  is  found  in  the  details  involved  in  get- 
ting the  accurate  cost  of  an  order.  Operations  are  short 
and  numerous.  A bench  worker  may  have  on  an  aver- 
age, from  five  to  nineteen  orders  go  through  his  hands 
in  an  hour.  To  keep  the  cost  on  each  order  he  would 
have  to  make  out  a time  card  for  each.  This  would  take 
him  an  hour  and  a half  each  day  and  thereby  much  of  his 
production  time  would  be  lost.  In  a shop  of  one  hun- 
dred men  about  eight  thousand  time  cards  would  have 
to  be  turned  out  every  day.  It  would  take  five  or  six 
people  working  at  posting  alone  to  accumulate  the  costs ; 
two  more  would  be  necessary  to  get  the  results  together, 
ready  for  the  accountant.  Obviously  no  manufacturing 
jeweler  can  see  his  way  clear  to  adopt  a time  card  system. 

With  these  four  conditions,,  which  are  common  to  many 
other  businesses  besides  the  jewelry  line,  how  can  a 
manufacturer  find  the  cost  of  what  he  is  doing  without 
paying  too  much  for  that  privilege?  Primarily  costs 
can  be  estimated  by  obtaining  costs  on  sample  parts  and 
letting  these  costs  stand  for  all  goods  in  that  line.  Ma- 
terial, labor  and  general  expense  are  the  items  to  be  con- 
sidered in  getting  these  costs.  And  in  the  items  of  gen- 
eral expense  the  one  of  tool  costs  is  most  important. 

This  is  the  way  one  manufacturer  has  solved  his  cost 
problem.  In  the  first  place  the  job  system  of  handling 
orders  was  thoroughly  reconstructed.  With  this  job  sys- 
tem as  a basis  and  by  an  accurate  accounting  and  pro- 
portioning of  general  expense  and  by  estimating  labor 


SMALL  PART  COSTS 


79 


and  material  costs  on  sample  parts,  this  manufacturer 
obtains  nearly  all  the  benefits  of  a cost  system  without 
estimating  material  and  labor  records  on  each  order 
which  goes  through  the  plant,  once  the  sample  lines  have 
been  established. 

' On  every  new  pattern  an  accurate  tool  cost  is  obtained 
first  of  all.  Orders  for  tools  are  put  in  the  plant  on 
Form  I.  This  form  is  printed  in  duplicate.  The  orig- 


EMPLOYES  NO* 


DATE 


EMPLOYES  NAME! 


DESCRIPTION 


STRIKING 

SOLDERING 

TRIMMING 

COLORING 

POLISHING 

BURNISHING 

PIN  TONGUEING 

STONE  SETTING 

7 i 


8 T * 


XTTU  iQ-i 


11 


12 


i 1 


2 t 


APPROVED 


FORM  IV:  Labor  costs  on  all  jobs  performed  at  hour  rates  are  quickly 
and  accurately  sumrned  up  on  this  form 


inal  is  thin  paper ; the  duplicate  is  cardboard.  The  back 
of  the  cardboard  copy  is  arranged  in  columns  as  shown 
in  Form  II.  Labor  costs  on  this  order  are  kept  on 
Form  IV. 

In  order  to  fill  out  each  salesman’s  line  at  the  be- 
ginning of  the  season  a number  of  samples  of  each  pat- 
tern are  made.  Accurate  costs  of  both  labor  and  ma- 
terial are  kept  on  these.  A production  order  is  made 
out  similar  to  that  shown  in  Form  III,  the  back  of  which 
is  arranged  like  the  back  of  the  cardboard  duplicate  of 


80 


RECORDS  OF  ESSENTIALS 


Form  I.  Labor  cost  is  kept  on  sample  manufacturing 
orders  with  the  same  sort  of  time  card  as  is  used  in 
obtaining  the  labor  on  the  tool  costs. 

Costs  so  obtained  are  collected  on  Form  Y so  that  after 


TIME 

NO. 

MIN. 

HRS. 

PER!  HR. 

AMOUNT 

GOLD  DWT@  1 

BENCH  WORK 

BENCH  WORK 

BENCH  WORK 

PRESS  WORK 

POLISHING 

SETTING 

LAPPING 

COLORING 

STAMPING 

TOOL  MAKING 

TOTALS 

DESCRIPTION 

NAME 

NO. 

DATE 

QUALITY' 

SHOP  EXPENSE 

STONE 

GRAND  TOTAL 

NO.  OF  PIECES 

PIECES  MADE 

COST  PER  PIECE 

BY  WHOM  MADE 

FORM  V:  By  checking  on  this  card  every  item  of  expense  in  manufac- 
turing a sample , a cost  standard  is  set  up  for  that  pattern 


the  samples  have  been  run  through  the  factory  a cost 
card  is  available  for  each  pattern  to  be  used  that  season. 

When  the  orders  come  in  from  customers  the  average 
quantity  of  any  one  pattern  is  generally  about  one  dozen, 
except  on  the  first-of-the-season  order,  when  it  is  gener- 
ally two  of  a kind.  Therefore,  the  cost  obtained  on  a 
trial  lot  is  very  close  to  the  cost  on  every  lot.  To  the 
labor  and  material  cost  are  added  the  tool  cost  and  the 
general  expense,  which  are  figured  as  percentages  on 
every  dollar  of  labor. 

By  means  of  the  job-order  system  all  detail  is  cen- 
tralized so  that  orders  can  be  pushed  through  faster,  and 
by  systematizing,  production  costs  can  be  lowered. 

At  the  beginning  of  each  season  there  is  a lull  in  the 


SMALL  PART  COSTS 


81 


business  during  which  all  time  is  devoted  to  getting  out 
samples.  During  this  period  it  is  very  easy  for  the  men 
to  keep  accurate  costs  on  their  work.  From  time  to 
time,  the  cost  on  any  pattern  is  tested  and  any  difference 
noted.  These  test  costs  do  not  interfere  with  the  routine 
or  the  production  to  any  extent. 

In  billing  each  order  that  leaves  the  factory  a dupli- 
cate is  made  in  a loose-leaf  book,  which  becomes  the 
sales  book.  This  book  has  one  column  more  than  the 
bill-head.  In  this)  first  column  the  factory  cost  as  ob- 
tained on  the  pattern  card  against  each  item  is  carried 
out.  At  the  end  of  each  month,  therefore,  the  amount  of 
sales  and  the  factory  cost  is  known. 

An  accurate  account  of  all  material  is  kept  and  the 
factory  charged  with  that  which  goes  into  manufactur- 
ing. It  is  also  charged  with  all  producing  labor  and  gen- 
eral expense  with  the  indirect  labor. 

In  the  general  ledger  these  accounts  shape  as  fol- 
lows: 


MATERIAL 


DR. 

Inventory. 

Purchases  during  the  month. 


CR. 

Material  put  into  manufac- 
turing. 

Balance  is  material  on  hand. 


LABOR 

DR.  CR. 

Pay  Roll  (from  cash  book).  Producing  labor  to  manufac- 

turing. 

Indirect  labor  to  general 
expense. 

This  account  closes  each  month. 

Each  season’s  tool  eost  is  computed  from  time  cards 
given  in  by  the  tool  room,  and  the  tool  account  is  charged 
with  the  whole  amount.  In  order  to  correctly  apportion 
this  cost  against  the  season’s  output  this  account  is 


82 


RECORDS  OF  ESSENTIALS 


charged  off  through  general  expense  against  manufac- 
turing. As  a season  usually  runs  four  months,  one- 
fourth  is  charged  off  each  month. 

In  this  way  there  is  either  a debit  or  a credit  balance 
in  general  expense  each  month.  If  the  balance  remains 
a small  debit  balance,  the  percentage  is  correct ; although 
as  this  balance  increases  general  expense  gains  on  out- 
put. This  being  the  case  the  percentage  rate  must  be 
increased  unless  the  reason  for  this  increase  is  known 
and  it  is  certain  that  it  will  go  back  to  normal  again. 
The  rule  works  in  the  opposite  way  on  the  credit  side 
where,  if  the  credit  balance  is  too  high,  too  large  a per- 
centage is  charged. 

These  accounts  in  the  general  ledger  are  as  follows : 


DR. 


Season’s  tool  cost. 


TOOL  ACCOUNT 

CR. 

Offset  at  one-quarter  rate 
against  four  months  of  sea- 
son so  that  each  season’s 
output  stands  its  own 
expense. 

Posted  to  general  expense. 


. GENERAL  EXPENSE 


DR. 

Indirect  labor  (from  labor 

cost). 

Superintendence. 

Rents,  insurance,  taxes. 
Light,  heat,  power. 
Depreciations. 

Supplies. 

Maintenance  and  replace- 
ments. 

Incidental  expenses. 

Tool  cost  (from  tool  account) . 


CR. 

Offset  at  fixed  percentage  to 
manufacturing. 


Considerable  detail  is  involved  in  carrying  out  this  ac- 
counting but  results  will  repay  your  labor.  In  some 
seasons  the  general  expense  is  high,  in  others  low.  By; 


SMALL  PART  COSTS 


83 


figuring  it  once  a year  you  strike  an  average  only.  As 
shown  above,  the  rate  is  corrected  each  month.  The 
moment  any  strange  condition  sets  in  you  know  it.  A 
great  amount  of  money  is  saved  in  this  way  which  it  is 
not  possible  to  save  when  on  January  1st  you  fix  a rate 
based  on  the  past  year  to  apply  on  the  coming  year,  in 
which  conditions  may  be  far  different. 

Most  of  the  detail  work  has  been  performed  in  build- 
ing up  the  following : 


MANUFACTURING  OR  OPERATING  ACCOUNT 


DR. 

Material  (from  material  ac- 
count). 

Labor  (from  labor  account). 

General  expense  (from  gen- 
eral expense  account). 

The  balance  is  work  in 
process. 


CR. 

Production  at  cost  obtained 
from  shop  orders. 


PRODUCTION  OR  FINISHED  GOODS  ACCOUNT 


DR. 

Production  at  cost  from 
manufacture. 

The  balance  is  finished  goods 
on  hand. 


CR. 

Sales  at  cost  from  sales 
book. 


SALES 

DR.  CR. 

Cost  of  sales  from  sales  book.  Selling  price  of  sales  from 

sales  book. 

The  balance  equals  gross  profits  and  from  this  you 
deduct  the  selling  expense  to  obtain  net  profits.  The 
latter  are  closed  into  profit  and  loss. 

There  are  many  other  general  ledger  accounts  which 
go  to  build  up  such  a balance  sheet  but  they  do  not  affect 
the  cost  accounting. 

There  is  only  one  disadvantage  in  this  method  of 
figuring  costs.  The  system  is  based  on  the  assumption 
that  the  factory  is  working  under  conditions  of  normal 


84 


RECORDS  OF  ESSENTIALS 


or  forced  production  and  gives  its  best  results  under 
such  conditions  only.  When  business  is  extremely  dull, 
the  workmen  know  it  and  in  order  to  keep  themselves  at 
work  they  loaf  at  what  few  jobs  they  get.  This  upsets 
the  cost  of  each  pattern  to  some  extent,  but  not  enough, 
to  affect  profit. 


C$3 


P ET  daily  condensed  records  of  important  statistics — it  is 
difficult  for  me  to  understand  how  some  manufacturing 
executives  believe  they  are  speaking  authentically  when 
quoting  from  reports  compiled  six  months  or  a year  ago  and 
are  content  to  refer  to  these  when  considering  their  present 
condition. 

This  takes  time , you  say , and  money . Yes , but  the  time 
to  insure  against  the  loss  of  your  ship  is  not  after  it  reaches 
mid-ocean.  You  may  have  a fighting  chance  when  affairs 
reach  the  stage  where  they  attract  your  attention;  still  you 
may  not  be  able  to  find  the  leak  in  time;  it  may  have  grown 
so  large  as  to  be  past  your  control. 

— Edward  D.  Easton 

President,  Columbia  Phonograph  Company- 


VIII 


KEEPING  LABOR  RECORDS 
BY  MACHINERY 


By  W.  B.  Jadden 

District  Sales  Manager,  Felt  and  Tarrant  Manufacturing  Company 

BY  INSTALLING  an  adding  and  computing  ma- 
chine operated  by  a young  woman,  the  services  of 
three  men  were  done  away  with  in  the  estimating  de- 
partment of  a Kansas  City  structural  steel  company.  All 
of  their  time  had  been  occupied  in  figuring  bills,  and 
even  so  they  were  unable  to  keep  up  with  the  volume  of 
work.  Not  only,  however,  did  she  do  all  the  work  they 
had  done,  but  it  required  only  sixty  per  cent  of  her 
time.  The  other  forty  per  cent  she  devoted  to  figuring 
material  for  the  stock  keeping  department.  Careful  in- 
vestigation of  the  same  sort  that  accomplished  this  re- 
sult brought  about  the  installation  of  a machine  in  the 
timekeeping  department;  here  also  a single  girl  now 
takes  the  place  of  two  clerks,  and  she  not  only  does  their 
work,  but  obtains  results  that  are  absolutely  accurate  in 
much  less  time  than  was  required  by  them. 

Analysis  of  your  pay  roll  methods  may  show  equally 
surprising  results.  For,  no  matter  what  the  size  of  the 
plant,  the  general  handling  of  the  labor  records  is  much 
the  same,  although  details  may  differ.  A profitable 
method  of  handling  labor  statistics  in  a two-thousand- 
man  factory  might  be  unavailable  for  the  thumb  nail 
records  in  a two-hundred-man  shop.  But  if  the  man- 
agers of  both  factories  were  to  list  chronologically  the 


86 


RECORDS  OF  ESSENTIALS 


steps  in  the  handling  of  their  labor  records,  they  would 
not  find  them  greatly  different,  one  from  the  other. 

When  such  an  analysis  is  made,  your  opportunities 
for  tying  up  loose  ends  and  making  a better  system  will 
probably  be  found  at  much  the  same  points  as  were 
those  in  the  factory  described  above. 

When  the  labor  records  were  analyzed  in  this  factory, 
it  was  found  that  the  operations  in  handling  them  could 
be  divided  into  thirteen  parts:  (1)  records  of  names  of 
workmen  and  applicants;  (2)  records  of  total  time  men 
worked;  (3)  records  of  what  men  spent  their  time  on; 
(4)  checking  of  2 and  3;  (5)  clerical  work  involved  in 
rating;  (6)  clerical  work  involved  in  computing  wages; 

(7)  clerical  work  involved  in  classifying  labor  totals; 

(8)  filing  work;  (9)  making  out  pay  roll;  (10)  making 
out  pay  envelopes;  (11)  checking  envelopes  with  pay 
roll;  (12)  counting  out  money;  and  (13)  time  distribu- 
tion. 


LOCATING  losses  in  the  work  of  finding  labor  cost 
details — substituting  machines  for  men  to  save  loss 
in  the  'performance  of  routine  clerical  work . 

After  the  clerical  labor  situation  had  been  analyzed  in 
this  way,  the  first  step  was  to  see  where  the  greatest 
losses  were  in  handling  and  how  they  could  be  prevented. 
It  was  found  that  much  of  the  clerical  work  could 
profitably  be  done  by  machinery.  Addressing  machines, 
time  clocks  and  records  and  adding  machines  were  fitted 
into  the  routine  wherever  possible. 

Records  of  workmen  were  first  overhauled  and  in- 
vestigated. It  was  found  that  the  names  could  be  set  up, 
rate  files  printed  and  pay  rolls  printed,  all  on  an  ad- 
dressing machine.  The  routine  of  this  department  was 
rearranged  so  that  this  work  became  the  duty  of  the  ad- 


AUTOMATIC  LABOR  COSTS 


87 


dressing  machine  operator.  The  balance  of  the  system 
was  changed,  so  that  now„  when  a workman  enters  the 
plant,  he  goes  first  to  a rack  at  the  gate  and  obtains  his 
clock  card  and  then  rings  in  on  the  clock  in  the  depart- 
ment in  which  he  works.  After  so  doing,  he  places  his 
clock  card  in  a rack  nearby.  This  is  locked  as  soon  as 
the  whistle  blows  for  commencing  work;  thus  late  ar- 
rivals, in  addition  to  being  detained  at  the  entrance  a 
limited  time  as  a penalty  for  arriving  late,  are  forced  to 
go  to  the  foreman  or  manager  of  their  departments  in 
order  to  get  their  cards  in  the  box.  When  the  time- 
keeper makes  his  call  at  the  rack,  if  the  card  is  not  in 
the  box,  it  is  necessary  for  the  foreman  to  explain  why 
it  is  not. 

A few  minutes  before  quitting  time  the  rack  is  opened 
to  allow  employees  to  secure  their  cards  to  ring  out,  and, 
after  ringing  out  in  the  department,  the  workman  de- 
posits his  card  at  the  entrance.  Thus  is  eliminated  all 
possibility  of  favoritism  to  late  or  absent  employees,  and 
it  is  also  known  just  how  long  each  operative  was  in  his 
department  and  how  long  he  should  have  been  produc- 
ing. 

The  investigation  was  carried  into  the  time-spent  rec- 
ords department.  Here  everything  was  formerly  done  by 
the  most  tedious  methods.  It  was  found  that  the  time- 
spent  records  could  be  worked  up  much  cheaper  and 
quicker  by  the  use  of  the  addressing  machine.  The  rest 
of  the  routine  was  revised  to  conform  with  the  installa- 
tion of  this  machine,  and  is  now  handled  as  follows : the 
name  and  check  number  of  each  operative  and  the  date 
of  pay  period  is  printed  on  each  clock  card  by  means  of 
the  addressing  machine.  The  clock  card  is  made  with  a 
detachable  coupon  at  the  top  which  bears  the  check 
number  of  the  operator  and  the  date  of  the  pay  period. 


88 


RECORDS  OF  ESSENTIALS 


On  the  beginning  of  the  pay  period,  this  coupon  is  de- 
tached and  retained  by  the  worker  to  be  used  on  pay  day 
as  his  identification  card;  he  presents  this  coupon  and 
gives  his  name.  If  both  check  with  the  pay  envelope,  he 
receives  his  money,  and  the  paymaster  retains  the  coupon. 
The  color  of  the  clock  cards  is  changed  each  pay  period. 

In  determining  what  each  employee  did  each  day,  and 
the  time  consumed  in  doing  it,  it  was  found  that  the 
work  was  entirely  clerical,-  and  a great  deal  of  time  could 
be  saved  by  the  installation  of  time  records.  The  method 
of  handling  this  part  of  the  work  in  conjunction  with 
time  records  is  as  follows : a time  slip  is  filled  out  by  a 
department  clerk  on  which  the  following  items  appear : 
check  number  of  the  worker,  date,  work  done  and  number 
of  units  finished,,  premium  number,  premium  rate,  basic 
wage  rate,  total  points  made  and  earnings  based  on  a 
standard  number  of  points  allowed,  plus  a percentage 
of  the  premium  points. 

On  the  day  following  that  on  which  these  slips  are 
filled  out,  they  are  checked  against  the  clock  cards  for 
total  time  worked,  and  also  against  the  production  rec- 
ords. In  all  cases,  without  exception,  checking  on  time 
and  production  is  done  by  the  labor  department  and 
never  by  the  foreman  or  his  assistants.  Any  variance  in 
the  records  is  immediately  called  to  the  foreman’s  at- 
tention and  corrected  at  that  time. 

REVISED  routine  in  the  timekeeping  and  cost  de- 
partments resulted  in  a large  saving  of  time  and 
clerk  hire , and  the  number  of  errors  was  lessened . 

The  time  slips,  after  being  cheeked  for  time  and  pro- 
duction, premium  number  and  rate,  are  sent  to  the  com- 
puting division  to  be  figured  and  made  ready  for  pay  roll 
and  labor  cost  records.  From  now  on  the  work  is  simple 


AUTOMATIC  LABOR  COSTS 


89 


mathematics  and  is  performed,  not  mentally  or  with 
pencil  and  paper  by  clerks  with  their  inaccuracies,  as. 
formerly,  but  at  high  speed  with  absolute  accuracy  on 
machines. 

The  first  step  in  the  computing  division  is  to  rate  each 
time  slip,  by  which  is  meant  filling  in  the  employee’s  rate 
per  hour,  whether  for  premium  or  day  work.  To  facili- 
tate this,  the  rate  cards  are  filed  consecutively  according 
to  check  numbers  by  departments.  Any  change  in  the 
worker’s  rate  per  hour  is  promptly  entered  on  this  rate 
card,  becoming  effective  only  at  the  beginning  of  a new 
pay  period. 

The  time  slips  are  passed  to  adding  and  computing  ma- 
chines, instead  of  to  the  half  dozen  clerks  that  were 
formerly  required  to  do  the  work.  Great  care  was  ex- 
ercised in  the  selection  of  these  machines  and  the  results 
of  their  work  have  many  times  repaid  the  original  out- 
lay. 

The  adding  and  computing  machines  are  then  so  ar- 
ranged that  one  operator  makes  the  detail  extensions  and 
additions  while  another  operator  checks  accumulatively. 
By  this  method  the  checking  is  done  with  greater  speed, 
and  the  work  is  absolutely  accurate.  With  the  former1 
clerks,  it  was  never  known  whether  the  results  were  ac- 
curate or  not,  and  the  checking  was  done  in  haphazard 
fashion,  if  done  at  all. 

After  the  time  slips  have  been  figured  and  checked,  all 
extensions  and  additions  known  to  be  absolutely  accu- 
rate, the  time  slips  are  ready  for  the  labor  distribution 
division.  Here,  again,  all  the  work  was  formerly  done 
in  long  hand,  but  a careful  study  of  the  system  of  dis- 
tribution pointed  out  many  operations  in  which  a ma- 
chine could  be  used  and  the  cost  of  two  or  three  clerks 
saved. 


90 


RECORDS  OF  ESSENTIALS 


A clerk  places  the  proper  signal  after  each  labor 
charge.  This  can  be  done  only  by  one  well  acquainted 
with  factory  conditions.  After  this  has  been  done,  it  is 
the  simplest  of  operations  to  collect  amounts  charged  to 
the  various  signals  by  using  adding  and  computing  ma- 
chines, because  the  operator,  without  removing  her  eyes 
from  the  time  slips,  adds  the  items  she  is  collecting  as 
fast  as  her  eye  can  pick  them  out.  As  a check  on  this 
clerk,  the  aggregate  sum  of  the  various  charges  made 
during  the  pay  period  must  balance  with  the  pay  roll. 
The  percentage  distribution  of  individual  labor  charges 
is  secured  accurately  and  easily — which  is  a most  im- 
portant consideration.  These  results  are  also  obtained  at 
much  less  expense  and  with  greater  rapidity  by  means  of 
these  machines  as  against  the  former  “slipshod”  method. 

After  the  labor  distribution  has  been  secured,  the 
time  slips  are  filed  according  to  check  numbers,  by  de- 
partments, until  the  end  of  the  pay  period,  when  the 
total  amount  due  each  worker  is  computed. 

The  labor  saving  investigation  was  carried  further  in 
the  pay  roll  department.  The  work  of  every  clerk  was 
analyzed,  and  wherever  any  work  was  found  that  could 
be  economically  done  by  machines,  it  was  assigned  to  the 
duties  of  a machine  operator. 

The  pay  due  each  employee  is  next  determined  and 
checked,  and  entered  on  the  pay  roll  sheet.  As  these 
sheets  have  already  been  run  on  the  addressing  machine, 
the  check  numbers  of  the  men  are  in  consecutive  order 
and  the  sheets  are  arranged  according  to  departments. 
As  the  time  slips  for  each  man  are  collected,,  and  the 
bunches  arranged  consecutively  by  check  numbers  and 
by  departments,  it  is  not  only  an  easy  matter  to  enter 
on  the  pay  roll  sheet  the  pay  due  each  employee,  but  the 
checking  of  the  posting  and  the  footing  of  the  pay  roll 


AUTOMATIC  LABOR  COSTS 


91 


can  easily  be  done  on  an  adding  and  computing  machine. 
One  operator  now  adds  the  entries  on  the  pay  roll  sheets 
by  departments  and  the  other  adds  the  amount  due  as 
noted  on  the  reverse  side  of  the  last  time  slip  for  the 
pay  period  for  each  operative  in  the  department.  These 
two  totals  must  balance.  The  pay  roll  is  now  made  up — 
not  by  mental  labor,  but  practically  all  by  machinery. 

A change  or  denomination  sheet  is  next  drawn  up. 
Here,  again,  mechanical  devices  supplant  mental  work. 
It  is  easily  done  by  sliding  a steel  guide  over  the  key- 
board of  an  adding  machine.  This  guide  leaves  ex- 
posed alternate  keys  in  the  machine,  which  is  now  used 
as  a counting  device.  In  this  manner,  the  number  of 
twenty,  ten,  five  or  one-dollar  bills  and  the  fifty,  twenty- 
five,  ten,  five  or  one  cent  pieces  required  is  easily  com- 
puted; the  speed  of  getting  the  denominations  depends 
entirely  on  the  ability  of  the  operator  to  analyze  cor- 
rectly an  amount  into  its  integral  parts. 

How  is  the  pay  roll  spent?  Are  the  profit  producing 
employees  retained  and  rewarded  according  to  their 
merit  ? Is  there  tangible  evidence  of  what  is  transpiring 
in  the  works  ? Where  are  the  leakages  and  what  must  be 
done  to  remove  them?  These  are  the  questions  that  the 
investigation  answered.  The  equipment  and  the  methods 
at  present  in  use  are  the  mediums  of  answer  to  these 
questions. 


A JUSTLY  discontented  force  can  cost  you  more  directly 
and  indirectly  than  the  most  expert  and  costly  super- 
vision can  ever  find  out . 

— William  C.  Redfield 

Secretary  of  Commerce 


IX 


HOW  TO  APPORTION 
“OVERHEAD” 


By  Sterling  H.  Bunnell 


LL  work  performed  by  a factory  organization  is 


JTJl  classified  as  ‘ ‘productive’ ’ or  “non-productive.” 
While  other  terms  are  used  to  define  these  classes,,  the 
above  are  fairly  satisfactory  in  indicating  the  distinc- 
tion between  that  part  of  the  work  done  by  the  em- 
ployees which,  as  it  is  sold  to  outsiders,  is  productive  of 
income  to  the  factory,  and  the  other  part  of  work,  which, 
as  it  cannot  be  charged  to  any  unit  of  manufacture,  is 
not  sold,  and  in  a certain  sense  does  not  produce  in- 


come. 


The  net  cost  of  the  “ productive”  division  of  the  fac- 
tory work  consists  of  material  and  labor;  this  is  better 
defined  as  the  4 ‘ prime’ ’ cost.  As  the  non-productive 
work  brings  in  no  direct  income,  its  cost  must  be  con- 
sidered a charge  on  the  cost  of  the  productive  class,  and 
thus  there  arises  the  conception  of  ‘ 4 gross’ * cost  of  pro- 
ductive work,  consisting  of  material,  labor,  and  the 
“ burden’ ’ of  the  non-productive  work. 

The  manner  of  apportioning  the  burden  against  the 
several  orders  in  progress  for  productive  work  has  re- 
ceived much  study  and  various  plans  have  been  devised 
and  used  with  success  in  suitable  fields.  One  of  the  larg- 
est of  these  fields  is  that  occupied  by  factories  with  labor- 
saving  machinery,  and  the  study  of  the  actual  cost  of 


APPORTIONING  "OVERHEAD" 


93 


operating  such  machines  with  due  regard  to  the  future 
is  of  great  importance. 

The  data  required  consists  of  an  accurate  expense  ac- 
count ranging  over  a period  of  several  months  of  good 
average  business  conditions,  a plan  of  the  plant  with  the 
arrangement  of  the  various  tools  and  spaces  for  tool 
hands,  and  an  inventory  giving  original  values  of  the 
various  tools  and  the  approximate  dates  of  their  con- 
struction. Taking  such  a plan  the  investigator  must 
mark  off  floor  spaces  about  each  tool  sufficient  to  ac- 
commodate the  workman  and  his  supply  of  work  in 
progress.  If  the  shop  is  well  arranged,  the  spaces  not 
actually  covered  will  not  be  very  great,  but  just  sufficient 
for  convenient  access  to  tools  and  work. 

ASSIGNING  an  hourly  rate  to  each  machine , which  is 
distributed  'proportionately  over  every  job  using  that 
machine , effectively  apportions  overhead. 

The  ground  plan  can  thus  be  laid  off  in  irregular 
figures,  each  occupied  by  a tool  and  its  contingent  equip- 
ment. Similar  spaces  are  laid  off  to  provide  for  the  vari- 
ous vise  hands,  erecting  men,  and  so  on.  Each  space 
with  the  equipment  pertaining  to  it  is  a “productive 
unit.” 

It  is  fair  to  assume  that  the  monthly  expense  due  to 
the  building  and  real  estate  should  be  paid  on  a basis  of 
square  feet  of  ground  occupied.  This  general  rule  may 
be  modified  so  as  to  assign  to  spaces  next  side  walls,  if 
much  better  lighted  than  the  interior  of  the  building,  a 
larger  share  of  the  building  expense ; while  central  floor 
space  two  stories  in  height  (as  in  a gallery  shop),  or 
spaces  having  crane  service,  should  be  rated  higher. 

The  inventory  of  equipment  is  next  used  to  set  a 
value  on  each  “productive  unit,”  whether  consisting  of 


94 


RECORDS  OF  ESSENTIALS 


a machine  and  its  equipment,  a vise  and  the  accompany- 
ing files,  chisels  and  other  shop  tools,-  or  a mere  space  on 
the  floor  where  an  assembler  may  work ; in  all  these  cases 
the  unit  is  considered  as  lying  within  a definite  area  of 
floor  space. 

In  the  estimated  value  of  a machine  tool,  the  cost  of  its 
foundation  if  any,  of  transportation  to  the  works  and 
erection  in  position,  and  of  countershafts  and  belting 
with  all  other  attachments  belonging  exclusively  to  this 
tool,  should  be  included.  The  tool  and  equipment  must 
earn  interest  on  its  total  value,  and  must  also  lay  up  a 
sufficient  amount  to  replace  itself  at  the  end  of  its  natural 
or  probable  life. 

A table  is  now  made  in  which  appears  the  serial  num- 
ber of  each  tool  in  the  shop,  the  name  of  the  tool  and,  in 
columns  following,  the  value  of  tool  equipment,  and  the 
percentage  determined  upon  for  interest  and  deprecia- 
tion. The  amount  to  be  earned  and  set  aside  each  month 
for  interest  and  depreciation  is  computed  and  set  down 
in  the  next  column.  In  making  this  table,  the  power 
house  equipment  is  grouped  and  its  interest  and  deprecia- 
tion computed  in  the  same  way.  Next  comes  the  esti- 
mated average  monthly  outlay  for  repairs,  and  the 
monthly  expense  for  the  floor  space  occupied  by  each 
tool  or  other  productive  unit  of  space.  The  proportion 
of  the  monthly  expense  for  small  tools  and  supplies  which 
can  be  readily  assigned  to  the  machines  direct,  as  drills 
purchased  for  use  in  drill  presses,  is  next  estimated  and 
set  down.  i 

The  cost  of  operating  the  power  plant  and  of  lighting 
and  heating  the  building  is  next  in  order.  This  is  ob- 
tained by  first  computing  the  cost  of  operating  the  power 
plant,  including  space  charge,  interest  and  depreciation, 
fuel  and  labor  cost;  then  estimating  the  average  horse- 


APPORTIONING  “OVERHEAD 


95 


/- 

1 DIRECT  MATERIAL 

^A.  FIND  WHAT  PERCENT  OF  TOTAL  OIRECT  MATERIAL  ENTERS  INTO 
EVERT  PRODUCT 

B.  IF  A PRODUCT  CONSUMES  .01  OF  MATERIAL.  CHARGE  IT  WITH  .01 

OF “OVERHEAD" 

C.  USE  WHERE  THE  ENTIRE  PRODUCT  IS  ESSENTIALLY  THE  SAME. 

WAGES 

A.  FIND  WHAT  PER  CENT  OF  TOTAL  DIRECT  WAGES  ENTERS  INTO 

EVERY  PRODUCT 

B.  IF  A PRODUCT  CONSUMES  .01  OF  WAGES.  CHARGE  IT  WITH  .01  OF 

"OVERHEAD.” 

C.  USE  WHERE  WAGES  ARE  AN  IMPORTANT  PART  OF  COSTS  AND 

^ VARY  GREATLY. 

3 OIRECT  LABOR  , 

"a.  FIND  WHAT  PER  CENT  OF  TOTAL  DIRECT  LABOR  HOURS  ENTERS 
INTO  EVERY  PRODUCT 

B.  IF  A PRODUCT  CONSUMES  .01  OF  DIRECT  LABOR  HOURS.  CHARGE 

IT  WITH  .01  OF  "OVERHEAD." 

C.  USE  WHEN  ALL  WAGES  ARE  NEARLY  UNIFORM. 

4 MACHINE  RATE  . 

''a.  FIND  WHAT  EXPENSE  EACH  MACHINE  IS  RESPONSIBLE  FOR; 
DIVIDE  THIS  INTO  AN  HOURLY  RATE. 

B.  IF  A JOB  USES  FOR  FIVE  HOURS  A MACHINE  RATED  AT  *0.13. 

CHARGE  THE  JOB  SO. 65  FOR  "OVERHEAD." 

C.  USEWHERE  BULK  OF  INVESTMENT  IS  IN  MACHINES.  AND  LABOR 

COSTS  ARE  RELATIVELY  IMPORTANT 

1 

METHODS 
OP  ^ 

CHARGING 

“OVERHEAD” 

8 SUPPLEMENTARY  , 
RATE 

A.  DETERMINE  AND  USE  MACHINE  RATE  AS  IN  4 SUBTRACT  TOTAL 

"OVERHEAD."  CHARGED  TO  SPECIFICJOBS  FROMTOTAL  ACTUAL 

"OVERHEAD."  DIVIDE  REMAINDER.  WHICH  IS  CAUSED  BY  IDLE 

TIME,  INTO  A "SUPPLEMENTARY  RATE." 

8.  IF  "SUPPLEMENTARY  RATE."  FOR  ONEMACHINE  INMARCH  ISS0.02, 

AND  A PRODUCT  USES  THAT  MACHINE  P1VE  HOURS,  ADD  SO.IO 

TO  THE  AMOUNT  ALREADY  CHARGED  BY  MA&HINC  RATE. 

C.  USE  FOR  4 WHEN  IDLE  TIME  IS  IMPORTANT. 

• "COST  NUMBERS'*  < 

A.  DETERMINE  MACHINE  RATE  AS  IN  4 CONSIDER  THIS  FOR  EACH 

MACHINE  A “COST  NUMBER":  IF  A MACHINE  RATE  IS  S0.T3. 

ITS  "COST  NUMBER"  IS  T5. 

B.  IF  ON  THIS  MACHINE  (COST  NO.  75)  A JOB  TAKES  SIX  HOURS. 

WHILE  TOTAL  COST  NUMBER  HOURS  FOR  MONTH  ARE  18,000 

AND  TOTAL  OVERHEAD  IS  *20.000  CHARGE  JOB  6X  *0.75X2Q(1B. 

C.  ’ALTERNATIVE  FOR  5 

A.  OAREFULLY  INSPECT  YOUR  PRODUCT  AND  DIVIDE  INTO  CLASSES 

OF  ARTICLES  ACCORDING  TO  AMOUNT  OF  OIRECT  COST  WHICH 

EACH  SORT  INCURS. 

7 INSPECTION 

6.  JUDGE  WHAT  PART  OF  OVERHEAD  EACH  CLASS  OF  PRODUCT  RE- 
QUIRES AND  CHARGE  ACCORDINGLY. 

8 MATERIAL  AND 

PERCENTAGE  a 

ON  WAGES 

C.  SPECIALLY  SUITED  TO  CHARGING  ADMINISTRATIVE  AND  SELLING 

COSTS. 

''a.  FIND  WHAT  PER  CENT  OF  BOTH  TOTAL  DIRECT  MATERIAL  AND 
TOTAL  DIRECT  WAGES  ENTER  INTO  EVERY  PRODUCT 

B.  IF  A PRODUCT  CONSUMES  .01  OF  MATERIAL  AND  .02  OF  WAGES 

CHARGE  IT  WITH  1^  (.01  + .02)  OF  "OVERHEAD  ” 

C.  USE  WHERE  MATERIAL  AND  WAGES  ARE  EQUALLY  IMPORTANT 

FACTORS  IN  COST. 

FIGURE  V:  These  are  the  standard  methods  of  charging  “overhead.” 
The  aim  in  every  case  is  to  make  each  job  or  piece  of  work  bear  its  due 
proportions  of  general  expense 


96 


RECORDS  OF  ESSENTIALS 


power  required  by  each  machine  when  running  under 
average  conditions.  The  probable  running  hours  per 
month  for  each  productive  unit  is  next  estimated;  this, 
in  the  case  of  vise  workers  and  floor  hands,  is  the  total 
working  hours  per  month  multiplied  by  the  number  of 
such  men  usually  employed.  Multiplying  the  horse- 
power used  by  the  number  of  hours  for  each  machine, 
and  adding  these  figures,  the  total  of  horsepower  hours 
may  be  compared  with  the  usual  output  of  the  power 
plant,  and  the  co-efficient  of  the  load  then  determined. 

The  item  of  general  shop  expense  remains,  comprising 
expense  for  small  tools  not  already  apportioned,  labor  of 
helpers,  miscellaneous  supplies,  loss  by  defective  work 
and  accidents,  and  expense  of  office  work  required  for 
managing  shop  affairs.  This  item  reduced  to  a monthly 
basis  seems  fairly  chargeable  to  each  employee  equally  as 
it  depends  in  great  measure  upon  the  number  of  men  em- 
ployed, increasing  with  a large  force  and  decreasing  with 
a small  one.  On  this  basis,  therefore,  the  monthly  ex- 
pense may  be  divided  by  the  number  of  men  employed, 
and  each  productive  unit  charged  with  the  share  belong- 
ing to  the  workman  or  workmen  attached  to  the  unit. 

The  table  now  provides  for  all  the  expense  which  per- 
tains to  the  shop  itself.  There  is  also  an  administrative 
expense,  consisting  of  salaries  of  the  manager  and  the 
elected  officers  and  general  office  expense,  with  whatever 
other  special  accounts  of  a private  nature  may  be  car- 
ried ; and  generally  a considerable  expense  for  selling  the 
factory  product,  consisting  of  advertising,  traveling, 
salaries  and  commissions,  and  entertaining.  These  ex- 
penses are  not  connected  with  construction,  but  with  ad- 
ministration ; and  are  best  provided  for  as  percentages 
on  the  gross  cost  of  the  goods  produced  by  the  shop, 
rather  than  by  inclusion  in  the  table  of  shop  expense. 


APPORTIONING  "OVERHEAD” 


97 


Carrying  across  the  totals  for  each  productive  unit, 
the  total  monthly  expense  of  each  is  obtained ; and  divid- 
ing these  amounts  by  the  hours  of  work  per  month  op- 
posite, the  hourly  rate  which  should  be  charged  for  each 
productive  unit  is  shown.  While  no  two  units  may  figure 
out  to  have  the  same  rates,  it  will  be  found  that  the  rates 
can  be  grouped  into  two,  three,  or  more  classes  in  which 
the  figures  fall  more  or  less  closely  together.  Flat  rates 
in  round  numbers  may  be  assigned  to  each  of  these 
groups,  and  substituted  for  the  exact  rates,  forming  a set 
of  two  or  three  burden  rates  for  the  whole  shop. 

It  may  be  found  that  the  rates  already  charged  for 
work  agree  closely  with  the  figures  based  on  the  table  of 
correct  burden  charges,  the  calculated  rates  agreeing 
closely  with  unaided  judgment.  If,  however,  local  cus- 
toms require  rates  too  low,  the  fact  must  be  faced  and 
altered,  or  disaster  will  overtake  the  business.  It  is  sel- 
dom that  the  combined  judgment  of  practical  men  is  at 
fault,  but  variations  from  average  conditions  may  bring 
about  a state  of  affairs  where  judgment  based  on  gen- 
eral knowledge  only  fails  to  appreciate  that  unusual  ac- 
tion is  necessary  to  avoid  loss. 


'T'HE  system  of  management  is  but  the  tool  of  the  manager 
A Alone  it  is  useless , may  even  be  dangerous;  the  manage - 
ment  without  it  is  handicapped , whereas  the  system  bached 
by  an  active  mind  continuously  using  it,  is  the  effective 
combination.  And  labor  saving  management  is  a system 
that  forces  the  executives  to  manage. 

— F.  G.  Coburn 


Assistant  Naval  Constructor,  U.  S.  N 


X 


DESIGNING  YOUR  COST 
FORMS 


By  S.  B.  Rogers, 

Production  Manager,  Sangamo  Electric  Co, 

CLERK  in  the  purchasing  department  of  a north- 


ii  ern  brass  factory  ordered  a five  years’  supply  of 
time  cards.  By  so  doing,  he  thought  he  was  saving  con- 
siderable money  for  the  company,  and  he  did  in  first 
cost.  But  he  neglected  to  figure  what  this  purchase 
meant  in  final  cost.  Whether  or  not  the  form  was  being 
used  efficiently  was  not  considered.  Whether  or  not  it 
was  of  the  best  design  for  the  purpose  for  which  it  was 
intended  was  not  thought  of.  In  fact,  at  the  time  the 
order  was  placed,  the  production  department  was  plan- 
ning to  supplant  this  form  as  soon  as  the  supply  of  old 
forms  had  been  exhausted.  The  purchase  clerk,  not 
reckoning  with  this  contingency  and  thinking  only  of  an 
efficient  purchase,  went  ahead  blindly. 

Now,  if  it  had  been  the  practice  in  this  concern,  as  it 
is  in  all  carefully  managed  factories,  to  buy  no  forms, 
old  ones  or  much  less  new  ones,  without  subjecting  them 
to  an  analysis  similar  to  the  accompanying  chart,  this 
unwise  purchase  would  have  been  avoided  and  money 
saved.  Order  your  supplies  of  forms  as  judiciously  as 
supplies  of  materials  and  new  equipment. 

Perhaps  the  first  and  most  important  item  to  con- 
sider is  the  use  to  which  the  form  will  be  put — how, 
where  and  when  it  will  be  used,  and  by  whom.  A form 


FINDING  THE  BEST  FORM 


99 


used  in  the  drafting  room  should  embody  different  fea- 
tures from  one  employed  in  the  machine  shop,  and  a 
card  used  by  the  erection  gang  out  in  the  yard,  where  it  is 
exposed  to  the  weather,  should  have  characteristics  that 
are  different  from  one  required  in  the  wood  shop. 
Again,  if  the  form  is  to  be  used  where  there  is  a great 
deal  of  grease  and  dirt,  design  it  for  that  purpose.  In 
the  pattern  room  the  requirements  are  not  so  severe  and 
hence  a less  durable  form  may  serve  the  purpose  just  as 
satisfactorily. 

Then,  there  is  the  question  of  how  a form  will  be  used 
— will  your  man  fill  it  in  with  pen,  pencil,  or  a punch, 
and  will  this  information  be  filled  in  at  the  office  or  out 
in  the  shop.  The  design  must  embody  a consideration  of 
the  use ' of  a rubber  stamp,  a time  clock,  automatic  re- 
cording devices  and  so  on.  Carefully  consider  the 
amount  of  clerical  work  and  also  the  personnel  of  the 
clerks  who  will  perform  this  work.  In  fact,  all  possible 
uses  to  which  a form  will  be  put  must  be  carefully  ana- 
lyzed before  the  second  step,  permanency,  is  considered. 

METHOD  of  using  a form  determines  the  hind  of  card 
adopted — need  for  preservation  and  rough  treat 
ment  in  the  shop  are  important  considerations . 

In  this  connection,  will  the  form  be  referred  to  con- 
stantly ? Must  it  be  preserved  for  a number  of  years,  or 
can  it  be  destroyed  as  soon  as  it  has  been  used?  How 
many  hands  must  it  pass  through  ? This  is  a vital  point. 
To  prove  it,  call  to  memory  some  filed-away  form  which, 
when  you  pulled  it  out,  was  so  torn  and  worn  that  it 
was  impossible  to  decipher  the  information  on  it.  Other 
things  being  equal,  if  the  form  is  to  be  used  only  for  a 
limited  length  of  time  and  then  destroyed,  there  is  no 
necessity  for  a thick,  heavy  card  with  lasting  qualities 


100 


RECORDS  OF  ESSENTIALS 


on  which  the  information  is  filled  in  with  ink. 

Again,  what  service  must  the  card  perform?  The 
analysis  of  this  question  will  influence  the  character  of 
the  form  considerably.  Will  the  information  on  it  be  used 
in  several  different  departments  or  will  it  be  confined 
to  one  department  only  ? In  either  case,  these  facts  must 
be  considered  in  its  make-up.  Also,  is  the  information 
on  the  form  to  be  taken  from  other  forms,  is  the  card 
self-contained,  or  is  the  information  collected  on  this 
form  to  be  used  in  conjunction  with  other  forms  ? 

All  of  these  facts  determine  the  quality  and  thickness 
of  the  paper  that  will  be  required.  The  question  of  color 
is  another  vital  point.  Is  it  necessary  that  a color  scheme 
be  used  ? Often  it  is,  and  in  such  a case,  a definite  color 
scheme  must  be  worked  out.  Know  commercial  weights 
and  sizes  before  you  attempt  to  design  a form  economi- 
cally. Then  again,  how  must  the  form  be  put  up  ? Of- 
tentimes it  is  necessary  to  have  it  perforated.  This  fact 
may  alter  some  of  the  other  features  that  have  been 
considered.  Again,  if  you  order  thick,  heavy  cards,  they 
may  in  the  aggregate  be  too  bulky  to  handle  and,  on  the 
other  hand,  if  too  thin  and  pliable,  difficulty  may  be  en- 
countered in  properly  filling  them  out. 

A great  many  forms  require  duplicates,  and  in  order 
that  clear  copies  may  be  obtained,  it  is  often  necessary 
to  sacrifice  weight  and  thickness  in  order  to  obtain  these 
clear  copies.  The  color,  size,  weight,  kind  of  paper  and 
number  of  duplicates  are  often  the  result  of  a compro- 
mise between  various  limiting  conditions.  Yet,  within 
all  these  limits,  there  is  a one  best  form  under  the  cir- 
cumstances, and  it  is  this  one  best  form  that  you  should 
strive  for,  because  by  its  use  large  savings  may  be  ob- 
tained. This  has  been  thoroughly  proved  by  the  many 
factories  that  have  considered  these  points  in  designing 


FINDING  THE  BEST  FORM 


101 


and  coordinating  their  various  factory  forms. 

A Chicago  factory  was  in  the  habit  of  using  a very 
poor  grade  of  paper  for  production  orders.  Oftentimes 
the  form,  before  it  had  served  its  purpose,  had  to  be 


| HOW  TO  GET  TH£  ONE  BEST  FACTORY  FORM  | 

r | 

f 

1 

1 

l __  _ 

A 

USES 

PERMANENCY' 

SERVICE. 

KIND  OF  PAPER 
ANO  COLOR 

4 

A 

—4 

INFORMATION  ON 
FORM 

SEQUENCE  OF 
INFORMATION 

RELATIVE  PROMINENCE 
OF  HEADINGS 

BALANCE  AND 
APPEARANCE 

4 

A . . 

4 

1 

NUMBER  OF 
DUPLICATES 

KIND  OF  TYPE 

METHOD  OF 
PREPARING  SAMPLE 

APPROVAL  BY 
DEPARTMENT  HEADS 

A 

j—— 

I 

r 

RECORD  OF  STOCK 

STANDARDIZING 

FORM 

STANDARD  INSTRUC- 
TIONS AS  TO  USE 

-PERIODIC 
TESTING  OF  FORM 

FIGURE  VI:  Forms  need  to  be  tested  before  they  are  used . This  chart 
shows  the  vital  points  to  be  considered  in  making  up  the  design  and  deciding 
on  the  kind  of  card  to  use 


entirely  rewritten.  This  fact  came  to  the  management’s 
attention  and  in  trying  to  remedy  this  condition,  they 
swung  clear  to  the  other  extreme.  The  very  best  and 
heaviest  kind  of  paper  was  ordered  to  replace  the  old 
grade.  Six  duplicates  of  the  production  order  were  re- 
quired and  the  new  paper  was  so  thick  and  heavy  that  it 
was  difficult  to  obtain  a clear  sixth  copy.  The  depart- 
ment which  received  this  last  duplicate  complained.  The 
result  was  a compromise  between  durability  and  clear- 
ness and  also  an  investigation  to  find  a kind  of  paper 
that  would  prove  still  more  satisfactory.  It  is  evident 
that  all  this  trouble  could  have  been  avoided  by  a thor- 
ough consideration  of  the  subject  in  the  beginning. 

After  you  have  decided  on  the  kind  of  paper,  the  next 
important  consideration  is  the  information  that  is  to  go 
on  the  form,  and  this  information  will  determine,  to  a 


102 


RECORDS  OF  ESSENTIALS 


great  extent,  the  design  of  the  card.  If  possible,  it 
should  be  made  to  conform  with  standard  sizes,  but  not 
at  a sacrifice  of  clearness.  You  should  carefully  look 
into  the  proper  width  and  spacing  of  lines  and  columns. 
Nothing  is  more  aggravating  to  a clerk  or  workman  than 
to  receive  a form  on  which  the  space  where  he  is  to  fill 
in  his  information  is  already  crowded  with  facts  filled  in 
by  a previous  clerk  or  workman,  due  to  the  limited  area 
allotted  for  the  purpose.  The  headings  should  be  so 
worded  that  the  least  possible  work  is  required  in  put- 
ting information  on  the  form. 

Many  factories  make  it  a practice  to  omit  the  firm 
name  on  all  forms  that  do  not  go  outside  of  the  factory, 
thereby  saving  the  space  required  for  this  purpose  and 
also  the  work  of  printing  the  name.  Draw  up  a list  of 
all  the  possible  information  that  may  be  required.  Then 
determine  the  relative  prominence  and  importance  of  the 
various  items  and  make  an  endeavor  to  eliminate  all  in- 
formation not  absolutely  essential  to  the  efficient  use  of 
the  form.  Superfluous  data  is  always  expensive.  It  at- 
tracts the  attention  of  every  one  who  uses  the  form,  and 
the  time  thus  consumed  is  evidently  wasted. 

LOGICAL  arrangement  of  information  according  to 
the  order  in  which  it  is  gathered  in  the  shop  or  used 
in  the  cost  office  makes  an  efficient  form . 

Study  also  the  sequence  of  operation,  endeavoring  to 
arrange  the  headings  and  columns  in  the  order  in  which 
they  will  be  placed  on  the  form.  One  factory,  for  in- 
stance, found  it  necessary  to  copy  to  a form  for  perma- 
nent record  several  important  points  from  bills  of  la- 
ding. The  form  was  first  designed  for  neatness  of  ar- 
rangement and  looks  and  with  no  regard  for  sequence  of 
operations. 


FINDING  THE  BEST  FORM 


103 


The  design  was  changed  so  that  the  items  were  in  their 
correct  sequence — in  this  case,  the  items  started  in  the 
upper  left-hand  corner  and  ran  directly  across  the  form 
and  then  down  one  space  and  back  across  the  form  and 
down  the  next  space,  and  so  on,  until  the  work  was  com- 
plete. 

After  you  have  decided  upon  the  sequence  of  informa- 
tion, the  next  question  of  importance  is  the  relative  prom- 
inence of  the  various  headings.  Which  shall  be  placed 
in  large,  bold  print  and  which  may  be  reduced  to  small, 
modest  type?  This  will  depend  upon  several  things, 
such  as,  which  item  is  referred  to  the  largest  number  of 
times,  which  is  the  most  important  for  future  use,  which 
items  will  be  copied  to  other  forms  later,  and  so  on. 
Then  consider  such  points  as  the  intelligence  of  the 
clerks  and  workmen  who  use  the  forms.  If  they  are  a 
non-intelligent  class,  it  is  sometimes  worth  while  to  play 
up  the  item  or  heading  that  they  must  refer  to  in  order 
that  they  may  become  familiar  with  its  prominence 
rather  than  its  actual  wording,  and  habit  will  soon  auto- 
matically guide  the  workman’s  pencil  to  the  proper  head- 
ing simply  because  it  is  conspicuous. 

Consider  your  forms  also  in  the  light  of  balance  and 
general  appearance.  Unless  conditions  actually  demand 
otherwise,  it  is  often  possible  to  give  the  form  this  essen- 
tial quality  of  balance.  When  lines  and  columns  are 
used,  limit  them  to  those  that  are  absolutely  necessary. 
The  fewer  the  better.  In  a great  many  cases  the  col- 
umns and  spaces  should  be  numbered,  as  this  is  of  con- 
siderable aid  when  referring  to  the  information  on  a 
form  in  a typewritten  report  or  memorandum.  In  such 
a case  it  is  only  necessary  to  refer  to  a certain  figure 
mentioned  in  column  2,  line  4 of  report,  and  so  on. 

All  of  the  points  so  far  discussed  should  now  be  drawn 


104 


RECORDS  OF  ESSENTIALS 


up  on  a sample  form.  This  may  be  done  on  an  ordi- 
nary sheet  of  paper  in  pencil  or  on  a sample  of  the  paper 
which  will  ultimately  be  selected.  The  type  may  be  set, 
printed  on  ordinary  paper  and  pasted  on  this  form,  so 
that  you  can  get  a clear  idea  of  its  appearance,  or  you 
may  fill  in  headings  with  ink  or  pencil. 

Issue  standard  instructions  explaining  in  clear,  civil 
English  just  how  these  forms  should  be  ordered,  dis- 
tributed, used,  collected,  filed  and  kept  track  of.  Also 
endeavor  to  collect  the  common  features  of  all  forms 
and  standardize  this  information.  Analyze  the  uncom- 
mon or  unlike  characteristics  and  make  an  effort  to 
standardize  these.  That  the  results  of  such  studies  will 
be  well  worth  your  while  has  been  proved  by  all  fac- 
tories that  have  systematically  carried  out  these  methods 
of  standardization. 


O ECORDS  before  every  man  from  manager  to  bobbin  boy 
key  up  the  whole  mill.  They  create  a sympathetic  hustle 
from  the  top  down  and  from  the  bottom  up.  I keep  all — over - 
seers  and  second  hands  alike — interested  by  showing  them 
how  they  can  do  better.  Progressive  totals  of  last  week  and 
today , showing  how  wastes  and  seconds  are  decreasing , will 
develop  a spirit  in  the  whole  mill. 

— Henry  D.  Martin 

General  Superintendent,  The  I.  E.  Palmer  Co. 


PART  III- COST  SYSTEMS 
THAT  PROVED  EFFECTIVE 


How  Cost  Records  Guide 

records  should  be  made  not  only  for  the 


purposes  of  determining  prices  and  securing 
efficiency,  but  also  with  the  objects  of  discover- 
ing opportunities  for  economy  and  openings  for 
expansion.  It  is  not  enough  to  know  how  much 


a job  costs.  It  is  most  essential  that  we  know 


why  it  costs  as  much  as  it  does  and  the  effects  of 
this  cost. 

If  the  next  job  costs  more  or  less  than  it  did 
the  last  time  it  was  made,  the  records  should  en- 
able the  portion  of  the  work  in  which  the  differ- 
ence exists  to  be  promptly  and  accurately  dis- 
covered. Indeed,  this  is  the  fundamental  prin- 
ciple of  a really  truthful  system  of  cost  keeping. 

The  successful  business  of  today  in  any  line  of 
endeavor  has  been  built  by  men  who  have  accu- 
rate knowledge  of  their  affairs  secured  from  keep- 
ing true  records  of  their  experiences  and  using 
them  in  guiding  the  business  to  a profitable 
showing. 


A.  M.  GLOSSBRENNER 

President , United  Typothetae  of  America 


XI 


HOW  TO  GET  OFFICE  COSTS 


By  Marshall  D.  Wilber 
President,  Wilber  Mercantile  Agency 

SYSTEMS  for  computing  production  costs  have  been 
adopted  in  the  last  decade  by  all  up-to-date  factory 
superintendents  and  managers  who  have  supervision  over 
“ productive  ” work — that  is,  work  employed  in  contrib- 
uting to  the  transformation  of  raw  material  into  a fin- 
ished article  to  be  put  on  sale  on  the  market. 

But  these  methods  have  been  applied  very  little  to  the 
determination  of  the  actual  costs  of  office  work.  In  de- 
termining productive  costs,  the  cost  of  the  office  work 
connected  with  the  production  and  sale  of  the  article  is 
generally  represented  by  a percentage  computed  in  a 
more  or  less  arbitrary  and  inaccurate  manner. 

In  some  lines  of  business  almost  all  cost  is  represented 
by  office  labor  and  office  expenses.  It  follows  that  any 
determination  of  the  cost  of  a specific  piece  of  work 
turned  out,  or  business  operation  performed  by  such  a 
concern,  must  be  procured  by  determining  the  cost  of 
the  office  labor  involved.  The  necessity  and  value  of  cost 
systems  in  the  office  is  nearly  if  not  quite  as  great  as 
in  the  factory  itself. 

An  accurate  system  of  office  costs  requires  that  each! 
item  of  expense  be  assigned  to  the  proper  department 
and  men,  and  compared  with  the  figures  for  the  same 
work  during  other  periods  as  far  as  possible;  also,  the 


108 


EFFECTIVE  SYSTEMS 


income  from  each  employee  should  be  noted,  for  an  in- 
crease in  cost  is  justifiable  if  a greater  percentage  of  in- 
crease in  income  results.  The  first  thing  to  learn  is 
precisely  what  the  individual  working  units  of  the  com- 
pany are  costing  and  producing — clerks,  stenographers 
and  bookkeepers.  When  you  know  that,  mere  addition 
will  tell  you  what  each  department  is  costing  in  and  of 
itself.  Then  a careful  analysis  will  show  just  what  pro- 
portion of  the  general  expense  each  employee  should 
bear. 

On  the  other  hand,  you  can  easily  credit  income  to 
the  department  and  the  individual  producing  it.  A 
comparison  of  expenses  and  income,  with  due  considera- 
tion of  all  conditions  surrounding  both,  will  always  tell 
just  what  each  department  and  individual  is  doing,  what 
profit  or  loss  each  is  showing. 

Suppose  one  mail  clerk  is  getting  five  dollars  a week 
and  another  six.  How  are  you  to  know  beyond  doubt 
whether  the  second  one  is  doing  twenty  per  cent  more 
work  than  the  first,  unless  you  possess  exact  records  of 
the  number  of  pieces  of  work  which  each  of  them  turns 
out? 


STENOGRAPHIC  costs  may  be  accurately  deter- 
mined by  keeping  time  records , production  data  and 
expense  statistics  on  every  operator  and  each  machine . 

It  is  comparatively  simple  to  obtain  cost  records  of 
stenographic  work.  Have  your  office  manager  keep  a 
series  of  work  sheets  (Form  I),  on  which  the  name  of 
every  stenographer  in  the  office  is  entered,  with  her 
weekly  salary  opposite.  Each  night  she  reports  the  num- 
ber of  letters  she  has  written,  or  the  mail  clerk  may 
check  the  number  as  the  work  is  turned  in  to  him,  by 
means  of  her  initials  on  each  letter.  These  figures  are 


OFFICE  COSTS 


109 


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FORM  I:  This  cost  sheet  is  kept  by  the  office  manager.  It  shows  the  total  cost  of  stenographic  work , and  the  " average 
per  dollar  9 column  gives  the  relative  efficiency  of  different  operators 


110 


EFFECTIVE  SYSTEMS 


entered  on  the  work  sheet.  When  yon  keep  a daily  in- 
dividual work  sheet  the  figures  can  be  transferred  di- 
rectly from  that  to  the  cost  sheet. 

Thus,  at  the  end  of  each  week,  by  adding  the  horizontal 
columns,  you  know  exactly  the  number  of  letters  written 
by  each  stenographer  during  the  week.  Adding  the  per- 
pendicular columns,  you  can  learn  from  the  first  column 
the  week’s  expenses  for  stenographic  labor,  from  the  suc- 
ceeding six  columns  the  daily  number  of  letters  writ- 
ten, and  from  the  final  column  the  total  number  of  letters 
written  by  all  girls  during  the  course  of  the  week. 

By  dividing  the  total  expenses  of  stenographic  labor 
by  the  total  number  of  letters  written,  you  get  the  aver- 
age cost  of  a letter.  Compare  these  figures  with  the 
number  of  letters  written  and  the  salary  received  by 
each  stenographer  and  you  know  at  once  whether  she 
has  written  above  or  below  the  average  number. 

Keep  these  records  accurately  month  after  month,  and 
the  results  will  show  you  what  you  are  paying,  on  the 
average,  for  the  writing  of  a letter.  You  thus  have  a 
standard,  below  which  you  cannot  economically  allow 
your  stenographers  to  fall.  Any  who  go  above  the  aver- 
age for  a considerable  period  of  time  may  be  rewarded 
accordingly.  The  system  thus  has  the  double  virtue  of 
giving  you  the  exact  cost  of  each  operation  and  of  work- 
ing perfect  justice  among  the  employees. 

The  work  done  by  each  kind  of  typewriter  machine 
and  the  cost  of  keeping  it  in  order  may  well  be  recorded 
in  the  same  manner.  For  these  records  the  office  man- 
ager has  the  same  kind  of  cost  sheet  and  the  machines 
are  listed  according  to  their  numbers.  Each  stenog- 
rapher in  reporting  the  numbers  of  letters  written,  also 
reports  the  number  of  her  machine.  Whenever  a new 
ribbon  is  called  for  or  any  repairs  are  done  upon  her 


OFFICE  COSTS 


111 


machine,  the  number  of  the  machine  and  the  amount  of 
expense  are  recorded.  An  average  cost  is  struck  from 
records  covering  a long  period  of  time.  This  indicates 
exactly  what  machines  are  doing  the  best  work  and  what 
machines  require  the  greatest  expense  for  up-keep.  Such 
records  will  soon  bring  to  light  the  kind  of  machines 
most  economical  for  your  use. 

APPLICATION  of  the  cost  'principle  to  all  depart- 
ments of  the  office  keeps  a strict  tab  on  the  results 
from  pay  roll  and  incidental  expenditures . 

Similar  methods  of  keeping  costs  may  be  advanta- 
geously applied  to  other  routine  work  in  the  office  in 
order  to  ascertain  the  number  of  documents  handled  by 
billing  clerks,  the  number  of  papers  filed  by  filing  clerks ; 
even  the  work  of  the  bookkeepers  themselves  may  be  re- 
corded in  such  a way  as  to  indicate  the  number  of  post- 
ings each  man  makes,  or  the  time  he  consumes  in  mak- 
ing journal  entries  or  taking  trial  balances.  The  slow 
men  are  inevitably  singled  out,  and  the  fast  workers 
stand  in  a class  by  themselves  and  receive  the  rewards 
due  them. 

The  system  does  not  demand  an  office  reorganization. 
Records  are  made  in  the  ordinary  routine  of  the  day’s 
work  at  the  point  where  they  can  be  made  most  easily 
and  quickly,  and  weekly  summaries  bring  final  results 
to  a focus  at  your  desk. 

In  offices  where  the  cost  system  has  received  careful 
trial,  its  application  has  gone  even  further.  The  work 
of  sub-executives  is  recorded  in  the  same  way  as  the 
routine  motions  of  clerks  and  typists.  Record  of  the 
daily  number  of  letters  dictated  by  correspondents,  the 
number  of  calls  made  by  outside  men,  and  so  on,  through 
all  the  grades  of  producers,  up  to  department  man- 


112 


EFFECTIVE  SYSTEMS 


agers  whose  business  is  to  oversee  and  plan,  and  not  to 
do  specific  things,  give  you  a hold  on  office  work  which 
enables  you  to  see  the  leaks  at  a single  glance  and  econo- 
mize in  places  where  haphazard  management  would 
recognize  nothing  out  of  the  way,  | 

These  examples  have  taken  account  of  only  two  items 
of  expense : pay  roll,  equipment — and  a small  portion  of 
supplies.  In  addition  to  all  such  costs,  there  are  a large 
number  of  items  still  uncharged — that  is,  charged  not 
to  any  one  department  or  job,  but  to  fixed  expense,  one 
of  the  most  vague  and  dangerous  terms  in  business. 
These  weekly  cost  reports  on  individuals,  when  added 
up,  tell  the  story  of  the  direct  expense  in  each  depart- 
ment, but  they  tell  only  half  the  truth,  and  are  there- 
fore all  the  more  likely  to  be  deceiving.  The  depart- 
ment which  shows  a comparatively  small  direct  expense 
may  be  responsible  for  a large  part  of  the  fixed  expense ; 
it  may  occupy  large  office  space  and  so  be  answerable 
for  a large  percentage  of  the  rent,,  or  the  work  done 
in  it  may  require  a large  amount  of  bookkeeping  and  so 
have  a heavy  accounting  expense  chargeable  against  it. 

For  instance,  in  an  office  occupying  6,000  square  feet 
of  space,  the  rent  may  be  $200  a month.  Department 
A in  that  office  is  occupying  1,500  square  feet  every 
month;  therefore  department  A must  be  charged  with 
$50  rent — one-quarter  of  the  total — and  the  other  de- 
partments with  their  just  proportion.  The  same  prin- 
ciple holds  good  for  every  item  that  is  classed  under  fixed 
expense,  from  taxes  to  ice  water.  All  supplies — like  sta- 
tionery, ink;,  or  pens — can  be  charged  directly  to  the 
department  using  them.  In  order  to  keep  track  of  these 
items,  supplies  must  be  taken  from  the  stock  room  only 
on  an  order  showing  to  what  department  they  are  to 
go  and  for  what  purpose  they  will  be  used. 


OFFICE  COSTS 


113 


Finally,  each  department  in  your  office  must  be 
charged  with  a due  proportion  of  the  expense  of  those 
departments  which  are  not  producing — like  the  adminis- 
trative, for  instance,  the  bookkeeping,  or  the  legal.  Let 
each  productive  department  bear  this  burden  in  pro- 
portion to  the  amount  of  work  each  requires  from  the 
non-productive,  or  in  proportion  to  its  volume  of  busi- 
ness. 

Having  arrived  in  this  way  at  the  total  expense  for 
each  department  or  each  official,  compare  the  present 
expense  with  that  of  past  periods,  and  with  the  amount 
earned  in  each  case,  or  the  amount  of  work  turned  out. 
If  the  output  or  earning  capacity  has  increased  at  a 
greater  rate  than  the  expense,  you  have  a net  gain,  even 
though  the  actual  cost  figures  are  higher  than  before. 


ctj 


CTEAM  and  electricity  have  made  'possible  the  develop- 
^ ment  of  the  world  and  these  forces  have  made  the  great 
machinery  age  in  which  we  are  now  living.  Everything  is 
being  done  on  a larger  scale , but  there  never  was  a time  when 
the  smallest  details  of  a business  had  to  be  watched  so  closely 
as  at  present.  The  great  problem  which  now  confronts  men 
in  industry  and  commerce , and  also  in  educational , religious 
and  philanthropic  work , is  one  of  management  and  admin - 
istration . 

— James  Logan 

Chairman  Executive  Board,  United  States  Envelope  Company 


XII 


FINDING  THE  COST  TO  SELL 

By  Percival  Richards 


UNINTENTIONALLY,  goods  are  sometimes  sold  at 
a loss.  The  price  maker  adds  a fair  gross  profit  to 
the  cost  of  manufacturing,  and  net  profits  are  blindly 
expected  to  come  from  this  difference  between  cost  and 
selling  price;  whereas,  actually,  total  selling  costs  vary 
almost  as  greatly  as  manufacturing  costs — in  fact,  the 
ratio  of  selling  cost  often  varies  inversely  to  the  cost  of 
manufacturing. 

It  is  essential,  therefore,  to  figure  selling  costs  as 
accurately  as  manufacturing  costs.  Otherwise  you  may 
lose  valuable  time  and  energy  in  selling  lines  of  goods 
which  do  not  show  an  adequate  profit;  no-profit  lines 
may  be  pushed  by  your  more  careless  salesmen,  in  order 
to  make  a good  showing,  where  high  class  goods  should 
be  sold;  selling  expenses  on  particular  goods  may  be 
excessive  when  you  consider  the  volume  of  trade  done. 

In  the  average  business  the  cost  of  selling  may  be 
divided  broadly  into : 

1.  Traveling  salesmen. 

2.  Agencies. 

3.  House  orders. 

4.  Overhead  expense. 

It  is  important  that  each  of  these  selling  costs  be  kept 
separate  and  up-to-date. 


SELLING  COSTS 


115 


Each  day,  as  orders  come  in  from  the  salesmen,  clerks 
in  your  office  should  work  out  the  invoice  amounts  and 
insert  selling  costs  at  the  same  time  in  order  to  obtain 
the  total  selling  price  and  the  total  cost  price  of  each 
customer’s  entire  order.  Copies  of  orders  go  to  the  de- 
partments concerned  and  the  original  order  sheets  are 
retained  in  the  office  and  filed  in  numerical  order,  a sep- 
arate file  being  kept  for  each  salesman.  The  results  thus 
obtained  are  entered  on  the  salesman’s  weekly  record 
(Form  I). 

This  card  places  on  record  a summary  of  all  orders 
obtained  during  the  week,  shows  the  invoice  values,  total 
cost  of  selling  the  goods,  and  a list  of  new  accounts 
opened.  The  salesman’s  salary  and  expenses  and  a rec- 
ord of  percentages  are  entered  on  the  back  of  the  card 
(Form  II).  Figures  for  the  last  corresponding  trip  are 
also  entered  for  the  purpose  of  comparisons  and  a 
monthly  summary  goes  to  the  summary  card  (Form  III), 
which,  when  completed,  gives  the  annual  totals. 

Figures  for  the  previous  year  are  also  entered  month 
by  month.  For  convenience  in  comparisons  they  are  in- 
serted in  red  ink  above  the  current  figures.  It  is  well 
also  to  total  the  figures  in  pencil  from  month  to  month, 
so  that  the  results  obtained  by  a salesman  for  any  period 
of  the  year  are  instantly  available,  together  with  the 
cost  of  obtaining  the  orders  and  the  percentage  of  gross 
profit  and  expenses.  Particulars  in  regard  to  agencies 
have  somewhat  similar  records,  the  column  for  expenses 
including  the  agent’s  commission. 

House  orders  or  sales  made  at  headquarters  to  visit- 
ing customers  are  recorded  under  the  headings  of  the 
different  house  salesmen.  A separate  card  (Form  IV) 
keeps  the  record  for  each  individual  salesman. 

Here  again,  figures  inserted  in  red  ink  show  the  record 


116 


EFFECTIVE  SYSTEMS 


of  the  corresponding  period  for  the  previous  year,  and  a 
summary  of  the  monthly  figures  on  the  salesmen’s  cards 
presents  the  total  house  sales  in  each  department  month 


SALESMAN’S  WEEKLY  RECORD 


NAME 


GROUND 


WEEK  ENDING 


CUSTOMERS’  NAMES  AND  TOWNS 


TOTAL  VALUE 
OF  ORDER 


TOTAL COST 
OF  SELLING 


STOCK  LINES 


SPECIAL  LINES 


TOTALS 


PARTICULARS  OF  NEW  ACCOUNTS  OPENED 


FORM  I:  This  weekly  record  is  kept  for  every  salesman,  and  shows  the 
net  results  of  his  work 


by  month.  Other  necessary  details  which  are  shown  on 
the  cards  of  traveling  salesmen  and  agents  are  repeated 
on  the  house  sales  card.  The  totals  of  department  selling 


SELLING  COSTS 


117 


expenses  for  the  month  complete  the  record  on  the 
monthly  sales  card. 

Probably  the  most  common  error  in  arriving  at  the 
complete  selling  cost  is  failure  properly  to  figure  in  all 


SALESMAN’S  WEEKLY  RECORD 

NAME 

WEEK  ENDING 

JOURNEY 

DATE  OF  LAST  JOURNEY 

ON  SAME  GROUND 

TOTAL  SALES 

COST  OF  GOODS  SOLD 

GOODS  RETURNED 

DURING  WEEK 

COST  OF  GOODS 

RETURNED 

NET  SALKS 

NET  COST 

GROSS  PROFIT  $ 

EXPENSES  % 

PERCENTAGE  OF  ) 

SALARY  S 

' GROSS  PROFIT  > 

ON  NET  SALES  ] 

TOTAL  $ 

PERCENTAGE  OF  ) 

EXPENSES  > 

ON  SALES 

CORRESPONDING  FIGURES  FOR  LAST  JOURNEY 

ON  SAME  GROUND 

FORM  II:  Printed  on  the  reverse  of  Form  I,  this  sheet  is  used  to  record 
'percentages  and  comparative  figures , and  becomes  a permanent  record 


overhead  selling  expense.  This  includes  not  only  the 
sales  manager’s  salary  and  expense  and  the  cost  of  his 
immediate  office  force,  but  also  the  rental  on  the  office 


118 


EFFECTIVE  SYSTEMS 


space  he  uses,  the  clerical  cost  of  maintaining  records 
of  the  sales  department,  and  so  on.  This  total  overhead 
expense,  which  does  not  vary  greatly  from  month  to 
month,  is  apportioned  against  each  salesman  and  each 


TRAVELER’S  NAI\ 

n E - 

I9n 

NET 

SALES 

COST 

GROSS 

PROFIT 

Q.  P. 

% 

SALARY, 

COMMISSION 

ETC. 

EXP. 

% 

LOCAL 

advertising 

JANUARY 

FEBRUARY 

HOUSE  ORDERS 
SALESMAN 


NET 

SALES 

COST 

GROSS 

profit 

G,  P. 

% 

SALARY, 

COMMISSION 

ETC. 

% 

REMARKS 

JANUARY 

FEBRUARY 

MARCH 

APRIL 

MAY 

JUNE 

JULY 

AUGUST 

SEPTEMBER 

OCTOBER 

NOVEMBER 

DECEMBER 

TOTALS 

FORM  III  (upper  sheet):  This  summary  card  shows  the  annual  totals , 
with  percentage  results  of  one  salesman . FORM  IV  ( lower  sheet):  Sales 
made  at  headquarters  are  recorded  for  each  salesman  on  this  card 

department  according  to  the  amount  of  total  sales.  For 
instance,  if  total  sales  in  all  departments  for  the  month 
are  $100,000  and  the  total  overhead  expense  is  $1,000, 
then  1 per  cent  of  the  total  invoice  of  sales  in  each  de- 
partment and  for  each  salesman  is  added  to  the  direct 
selling  cost  for  indirect  expense.  If  sales  in  one  depart- 
ment or  for  one  salesman  should  equal  $10,000  for  the 
month,  $100  represents  the  indirect  selling  cost  charged 


SELLING  COSTS 


119 


against  him.  Failure  to  figure  all  overhead  expenses 
and  distribute  them  properly  will  sometimes  explain  an 
otherwise  unaccountable  dwindling  in  your  profits,  a 
leak  all  the  more  dangerous  because  it  is  hard  to  locate. 

Total  sales  and  selling  costs  arranged  by  departments 
and  by  individual  salesmen  and  agents,  with  figures  for 
the  corresponding  period  of  the  previous  year  above  the 
current  figures  in  red  ink,  show  you  at  a glance  the  total 
increases  and  decreases,  keep  you  into  the  closest  possible 
touch  with  the  profit-bringing  quality  of  your  sales 
department  and  place  in  your  hands  the  key  which 
closes  the  door  on  slip-shod  methods  and  weak  selling 
campaigns.  You  have  valuable  data  on  which  to  base 
future  policies,  cutting  out  unprofitable  lines  and  re- 
ducing sales  costs  to  the  minimum. 


TN  ORDER  to  increase  'production  a manager  does  not 
A study  his  plant  in  a lump  sum , hut  goes  through  his  shop 
and  analyzes  each  operation  and  movement.  It  often  happens 
that  he  discovers  astonishing  possibilities  that  have  hidden 
themselves  for  years  in  the  most  transparent  disguises . 

— F.  C.  Cutler 

Sales  Manager,  Worcester  Pressed  Steel  Company 


XIII 


PLANNING  A RETAIL  STORE 
EXPENSE  SHEET 

By  E.  J.  Bliss 

Managing  Director,  Regal  Shoe  Company 


NOT  long  ago  a department  store  in  the  Southwest, 
after  years  of  apparently  profitable  business,  closed 
its  doors  in  the  middle  of  a busy  season.  The  store’s 
strong  point  had  been  its  stocks.  Its  advertising  slogan 
was  “Everything  New  While  It’s  New.”  It  maintained 
standing  orders  for  novelties  with  New  York  and  Chi- 
cago jobbers.  Hardly  a day  passed  that  something  abso- 
lutely new  was  not  shown  in  its  store  windows. 

City  stores  find  that  not  more  than  70  per  cent  of 
their  merchandise  moves  at  regular  prices.  Seventy-five 
per  cent  would  be  an  outside  figure.  The  balance  is  sold 
at  price  concessions  ranging  from  25  per  cent  off  to 
perhaps  20  per  cent  below  cost.  It  is  a fundamental 
principle  of  modem  merchandising  that  no  goods  shall 
be  carried  over  from  one  season  to  another.  Recog- 
nized staples  are  possibly  excepted,  though  in  some 
houses  even  these  are  sacrificed.  Such  radical  reduc- 
tions representing  a loss  in  every  sale,  must  be  balanced ; 
otherwise  a store  will  find  itself  upon  the  rocks  in  short 
order. 

This  was  what  undermined  the  southwestern  store. 
Its  volume  was  large  enough.  The  ratio  of  sales  to  pur- 
chases was  not  disproportionate.  But  doing  a novelty 
business,  it  did  not  get  enough  for  its  goods.  Its  owners 


RETAIL  COSTS 


m 


entirely  neglected  to  figure  that  their  frequent  price  re- 
ductions, necessary  to  move  odds  and  ends  or  slow  lines, 
amounted  to  considerable  sums  which,  not  taken  care  of 
in  the  overhead  charges  or  selling  expense,  quickly  ab- 
sorbed the  profits. 

Through  this  failure  to  provide  for  normal  deprecia- 
tion of  stocks  and  necessary  price  reductions  toward 
the  end  of  the  regular  seasons,  many  merchants  have 
come  to  grief.  Mercantile  agencies  report  that  a large 
percentage  of  retail  failures  are  directly  due  to  the 
owner’s  belief  that  a business  is  making  a profit,  when, 
as  a matter  of  fact,  it  is  running  at  a loss.  The  only 
way  to  be  sure  of  making  ample  net  profits  in  any  busi- 
ness— particularly  in  a retail  business  handling  a multi- 
plicity of  articles — is  to  keep  close  watch  on  details. 

There  are  but  twenty-four  hours  in  a day.  If  an  idea 
strikes  the  average  executive  and  he  has  within  arm’s 
reach  the  means  of  verifying  its  value,  he  settles  the 
matter  at  once.  But  if  means  of  verification  are  not 
at  hand,  if  they  require  “digging,.”  he  will  hesitate; 
and  if  he  thinks  the  interest  is  of  minor  importance  he, 
as  a rule,  will  sidetrack  the  matter  in  favor  of  other 
interests  clamoring  for  attention. 

OVERSTOCKING  on  slow-moving  lines  often  repre- 
sents a dead  loss  in  the  retail  store — automatic  re- 
striction of  purchases  in  a chain  of  shoe  houses . 

The  situation  of  the  manager  in  one  of  a chain  of 
stores  in  a big  organization  is  the  same.  He  has  just  so 
much  vital  energy,  and  there  is  plenty  of  selling  work 
to  absorb  it  all.  But  it  is  of  prime  importance  that  he 
shall  spend  some  of  that  energy  in  studying  the  entire 
picture  of  his  establishment  as  the  general  management 
sees  it.  Unless  that  picture  is  plainly  painted  for  him^ 


122 


EFFECTIVE  SYSTEMS 


however,  with  the  lights  and  shadows  all  filled  in,  and 
hung  where  he  can  see  it  merely  by  raising  his  eyes,  he 
will  not  study  it.  Routine  duties  crowd  it  out.  To  paint 


FORM  I:  This  is  the  left  half  of  the  “ blanket  report”  The  original  is 
fourteen  by  sixteen  inches . The  left  column  in  each  case  represents  the 

current  year;  the  right  the  corresponding  period  of  the  previous  year 


just  such  a picture  for  each  store  manager,  the  following 
sales  and  expense  record  system  was  designed. 

When  natural  development  and  expansion  had  come  to 


RETAIL  COSTS 


123 


the  business — had  converted  a chain  of  specialty  stores 
handling  only  one-price  men’s  shoes  into  a chain  of  gen- 
eral stores  selling  a comparatively  wide  variety  of  mer- 


FORM  I- A:  This  is  the  right  half  of  the  report  shown  in  Form  /.  The 

report  brings  together  monthly  and  cumulative  statistics  and  compares  them 
with  the  previous  year 


chandise — it  then  became  necessary  to  accommodate  each 
store  to  local  conditions,  to  scan  investment  figures  more 
closely,  to  favor  the  more  profitable  lines,  and  in  a hun- 


124 


EFFECTIVE  SYSTEMS 


dred  ways  to  exercise,  through  the  manager,  an  intelli- 
gence such  as  can  be  exercised  only  when  a comparative 
bird’s-eye  view  of  condensed  details  is  available. 

The  problem,  then,  was  to  supply  hundreds  of  store 
managers,  men  who  were  keen  and  able,  but  who  had 
been  trained  to  do  or  to  think  of  little  else  than  selling 
goods,  with  complete  information  about  their  own  stores 
— information  covering  investment,  interest  charges,  de- 
preciation charges,  gross  profit,  net  profit,  expense — 
such  information,  in  short,  as  a real  merchant  must  have 
and  must  use  in  planning  his  business  moves.  Further- 
more, the  information  must  be  furnished  in  simple,  un- 
derstandable form,  without  calling  for  effort  which 
might  distract  the  manager  from  his  more  important 
duties. 

We  solved  this  problem  by  providing  each  manager, 
not  with  a set  of  books,  but  with  a single  sheet  of  vellum 
paper  which  lasted  for  one  year,  and  on  which  appeared, 
in  detail,  all  the  vital  figures  of  his  store  from  month  to 
month — sales,  expenses,  inventory,  and  so  on.  This 
sheet  is  shown  in  Forms  I and  1A.  In  the  left  column 
in  each  case  are  entered  the  detailed  figures  for  each 
month  of  the  preceding  fiscal  year,  together  with  a run- 
ning total  (of  the  main  items  only)  for  convenience  in 
making  comparisons.  Each  month  the  figures  on  each 
item  for  the  current  month  are  copied  in  the  column  at 
the  right.  Thus  the  practical  use  of  this  form  is  made 
easy  for  an  untrained  mind  because  the  figures  on  the 
left-hand  side  all  refer  to  past  performances,  while 
those  on  the  white  refer  to  current  business. 

By  this  method  the  store  manager  has  constantly  under 
his  eye  the  source  of  every  dollar  of  income,  the  cause 
of  every  dollar  of  outgo,  the  total  investment  in  stock, 
in  fixtures  and  in  improvements.  And  he  has  all  these 


RETAIL  COSTS 


125 


figures  placed  directly  alongside  the  corresponding , fig- 
ures for  the  previous  year.  In  fact,  he  has  before  him, 
what,  I think  I am  safe  in  saying,  not  one  merchant  out 
of  twenty-five  has  before  him  at  any  time.  And  he  has  it 
in  such  shape  and  so  easy  to  size  up  that  he  can  utilize 
any  leisure  moment  to  pick  up  the  sheet  and  get  at  facts 
and  tendencies  at  once.  No  preliminary  digging  for 
data  is  necessary — no  mass  of  reports  and  tabulations 
such  as  the  ordinary  bookkeeper  loves  to  furnish  but 
which  no  ordinary  store  manager  has  the  patience  to 
labor  over,  or  having  labored  over  can  easily  understand. 


TF  WE  could  secure  the  complete  sympathy  and  cooperation 
1 of  every  person  employed  in  our  business  operations , it 
would  soon  result  in  the  invention , adoption , and  complete 
assimilation  of  the  most  up-to-date  methods.  And  without 
such  cooperation , we  cannot  completely  assimilate  and 
economically  operate  any  complete  system  of  modern  methods . 

— A.  W.  Burritt 

President,  A.  W.  Burritt  Company 


XIV 


RECORDS  THAT  SAFEGUARD 
PRINTING  ESTIMATES 

By  Neil  M.  Clark 


ESTIMATES  are  the  basis  on  which  the  printer 
secures  work.  These  estimates,  if  they  are  ac- 
cepted, bind  you  with  the  force  of  a contract,  and  in 
your  bill  to  the  customer  you  must  live  up  to  your  first 
figure.  If  you  were  wrong,  if  your  original  estimate  was 
too  low  and  a loss  is  incurred  in  doing  the  work,  it  falls 
on  your  own  shoulders.  You  cannot  burden  the  cus- 
tomer with  a charge  arising  from  your  own  carelessness 
or  ignorance.  If  you  wish  to  avoid  the  possibility  of 
grossly  wrong  estimates,  it  is  essential  that  you  know 
costs  in  every  department  of  your  business. 

Simplicity,  the  provision  that  each  job  shall  bear  its 
due  proportion  of  overhead,  and  the  means  of  quickly 
tracing  errors  in  estimates — these  are  the  points  that 
distinguish  the  cost  system  of  one  large  printing  con- 
cern recognized  as  among  the  foremost.  Actual  experi- 
ence has  shown  that  the  principles  embodied  in  this  sys- 
tem can  be  applied  equally  well  to  the  smaller  business. 

When  the  order  is  received,  details  are  copied  on  the 
office  job  record  (Form  I).  This  sheet  is  the  real  heart 
of  the  cost  system,  since  all  items  comprised  in  the  cost 
of  the  job,  as  well  as  the  details  of  its  history,  are 
gathered  together  on  it.  Wide  margins  at  the  left  allow 
the  sheets  to  be  bound  in  book  form.  They  are  arranged 


PRINTER’S  COSTS 


127 


according  to  order  numbers,  and  immediate  reference  to 
any  job  thus  becomes  easy.  The  upper  right-hand  cor- 
ner is  perforated  so  that  it  can  be  torn  off  as  a sign  that 
the  job  is  finished  and  posting  is  completed.  A glance 
through  the  binder,  therefore,  shows  which  orders  are 
finished  and  billed,  and  which  are  still  on  hand  in  the 
shop. 

Form  II  is  the  reverse  of  this  office  job  record  sheet. 
Details  of  cost,  gathered  from  day  to  day,  are  entered  in 
the  proper  columns,  including  the  date  and,  as  in  the 
case  of  the  press  room,  the  number  of  the  machine  used ; 
or,  as  in  the  composing  room,  the  kind  of  work  done. 
These  details  are  secured  from  the  time  tickets  of  the 
various  departments. 

Composing  room  and  press  room  tickets  are  shown  in 
Forms  III  and  IV.  The  workman  indicates  by  a letter 
the  kind  of  work  he  is  doing,  puts  the  job  number  in 
the  proper  column  and  crosses  out  the  times  of  starting 
and  stopping.  Other  departments  have  time  tickets 
made  up  in  the  same  style,  differing  only  in  the  details. 
For  small  shops,  it  has  been  found  unnecessary  to  have 
more  than  one  ticket.  Such  a ticket  can  easily  be  made 
with  special  columns,  one  for  the  composing  room, 
another  for  the  platen  press  room,  a third  for  the 
cylinder  press  room  and  a fourth  for  the  bindery,  with 
other  columns  if  they  are  needed.  If  your  bookkeeping 
force  is  small,  one  form  saves  time  in  the  office. 

After  all  details  for  the  job  are  complete,  the  col- 
umns on  Form  II  are  totaled  and  transferred  to  the 
“costs”  column  of  Form  I.  Other  details  for  this 
column  are  obtained  from  invoices,  in  the  case  of  work 
or  stock  bought  on  the  outside,  and  from  stock  re- 
quisitions. 

Overhead  is  also  distributed  in  this  “cost”  column. 


128 


EFFECTIVE  SYSTEMS 


PRINTER’S  COSTS 


129 


Percentage  on  wages  is  the  method  used  in  this  dis- 
tribution. Two  percentages  are  figured  in  each  depart- 
ment : one  for  charges  which  vary ; one  for  fixed  charges. 
The  first  percentage  includes  such  items  as  superintend- 
ence, all  indirect  labor,  idle  time  and  sundries  which 
vary  from  week  to  week.  The  second  percentage  is  for 
rent,  depreciation,  interest  on  investment  and  other 
fixed  charges.  Thus,  if  direct  wages  on  a certain  job  in 
the  composing  room  are  $2.00,  and  the  overhead  per- 
centages for  that  department  have  been  fixed  at  20% 
and  30%  respectively,  then  $0.40  and  $0.60  are  charged 
for  composing  room  overhead.  The  same  process  is  fol- 


FORM  II:  Reverse  of  Form,  7,  showing  how  the  details  of  cost  are  re- 
corded from  day  to  day  for  every  job , giving  finally  the  totals  by  headings 


lowed  in  press  room  and  bindery,  with  different  per- 
centages. 

After  total  costs  for  the  shop  have  been  collected, 
two  more  percentages,  figured  on  the  basis  of  total  shop 
cost,  are  added  to  complete  the  distribution  of  overhead. 
First  is  a small  percentage  for  boxing  and  shipping,  and 


130 


EFFECTIVE  SYSTEMS 


second  a larger  percentage  which  distributes  general 
office,  selling  and  administrative  expense.  Thus,  if  the 
total  shop  cost  on  a certain  job  is  found  to  be  $8.00,  and 
the  shipping  and  selling  percentages  for  the  current  year 


DAILY  PRESS  TIME  TICKET 

DATE 19t PRESS  NO 

PRESSMAN FEEDER  

FOREMAN  WILL  SEE  THAT  JOB  NUMBERS  ARE  RIGHT  O.  K FOREMAN 


THE  NUMBER  OF  JOB  MUST  BE  ENTERED  ON  THIS  REPORT  BEFORE  COMMENCING  WORK  ON  SAME 

COMPOSITOR’S  DAILY  REPORT 


FOREMAN  MUST  SEE  THAT  TIME  IS  CORRECTLY  REPORTED  AND  JOB  NUMBERS  RIGHT 
UNDER  "KIND  OF  WORK"  USE  FOLLOWING  ABBREVIATIONS: 

C“COM POSITION.  A-A LTE RATIONS.  M-MAKE-UP.  L-LOCK-UP.  E P-CXTRA  PROOFS.  O-OISTRIBUTION. 


FORMS  III  and  IV:  The  former  ( front  card)  is  the  time  ticket  used  in 
the  composing  room.  Form  IV  is  the  platen  press  time  ticket.  Each  kind 
of  work  has  a symbol , which  is  entered  in  the  last  column 


are  2%  and  30%  respectively,  then  $0.16  and  $2.40’  are 
added  to  the  $8.00.  Commission,  car  fare  and  other  in- 
cidental expenses  connected  with  the  job  are  included, 
giving  the  complete  cost.  A comparison  of  this  figure 
with  the  estimate  shows  how  nearly  correct  the  latter 
was  and  gives  a line  on  the  accuracy  of  solicitors  and 
the  efficiency  of  operating  departments ; comparison  with 
the  billed  price  to  the  customer  shows  the  amount  of  gain 
or  loss  on  the  job,  and  furnishes  the  immediate  basis  for 
bringing  together  overhead  percentages  and  estimates. 

As  each  job  is  finished,  the  details  are  posted  from 


PRINTER’S  COSTS 


131 


the  office  job  record  to  the  journal,  in  which  each  job 
has  a line  across  a large  page,  and  the  individual  costs 
for  each  department  and  kind  of  work  are  posted  to  the 
proper  columns.  In  this  way  it  is  possible  to  secure  total 
costs  for  each  department  and  kind  of  work  for  a month, 
year,  or  any  period  desired,  and  percentages  are  de- 
duced which  are  invaluable  in  estimating  future  jobs. 

Division  of  overhead  has  been  brought  to  so  nice  an 
adjustment,  that  actual  costs  in  this  concern  vary  from 
the  amounts  charged  to  specific  jobs  by  not  more  than 
1 or  2%  a year.  Particularly  valuable  is  the  system, 
also,  because  of  the  fact  that  it  fits  in  with  the  general 
accounting  system ; is  really  an  essential  part  of  it.  The 
facts  collected  enable  the  printer  to  do  away  with  guess 
work  in  his  estimates.  The  shop,  in  short,  is  run  on  a 
basis  of  accurate  knowledge. 


Cg3 


IV/fODERN  scientific  management  is  exactly  what  the  name 
implies — management  based  on  knowledge — on  ascer- 
tained facts  rather  than  on  opinions , however  brilliant — of 
workman , foreman , superintendent  or  manager . 


— S.  B.  Peck 

Vice-President.  Link  Belt  Company 


XV 


COSTS  IN  A PROFESSIONAL 
OFFICE 

By  O.  M.  Biggar 


PROFESSIONAL  costs  are  generally  kept  with  little 
pretense  of  accuracy.  Very  often  the  doctor,  law- 
yer or  dentist  charges  what  he  thinks  the  client  can  af- 
ford to  pay,  rather  than  what  the  job  is  actually  worth. 
That  the  office  which  carries  this  to  the  extreme  drives 
away  trade  goes  without  saying.  The  nearer  you  can 
fix  charges  on  a basis  of  actual  cost,  and  the  more  equit- 
ably you  apportion  them  among  all  your  customers,  so 
much  the  better  are  your  chances  of  retaining  and  in- 
creasing the  volume  of  your  business. 

In  establishing  a law  office  on  a business  foundation, 
one  of  the  members  of  a western  firm  of  attorneys  de- 
cided to  ascertain  the  cost  of  each  piece  of  business  in 
the  office  and  so  have  a basis  for  determining  what  fees 
each  client  should  pay;  not  necessarily  so  that  the  cost 
should  be  the  only  factor,  but  so  that  the  cost  should  be 
at  least  one  of  the  factors.  The  importance  and  urgency 
of  the  business,  the  amount  of  money  involved,  and  in 
many  cases  the  ability  of  the  client  to  pay,  all  enter  into 
the  final  determination  of  the  charge  to  be  made.  But 
while  in  almost  every  other  business  the  cost  of  doing 
the  work  is  a prime  factor  in  determining  the  charge, 
in  law  the  cost  is  usually  altogether  unknown,  and 
charges  are  often  made  in  complete  ignorance  of  it. 


PROFESSIONAL  COSTS 


133 


Clients  are  frequently  very  keen  judges  of  the  ease  or 
difficulty  with  which  their  affairs  can  be  adjusted  and, 
in  the  early  stages  of  their  connection  with  a law  firm, 
may  be  estranged  by  a charge  which  seems  out  of  pro- 
portion with  the  services  rendered. 

ESTABLISHING  a system  of  cost  keeping  in  a law 
office  resulted  in  better  work  on  the  part  of  employees 
and  more  equitable  charges  to  clients. 

Any  one  with  office  experience  knows  also  that  clerks 
and  investigators  are  likely  to  make  much  more  effective 
use  of  their  hours  if  called  upon  to  account  for  them 
daily.  On  this  score  of  individual  efficiency  alone,  a time 
and  cost  keeping  system  is  worth  more  than  the  expense 
of  operating  it  and  checking  up  its  workings  at  intervals. 

Considerations  like  these  led  to  the  abandonment  of 
rule-of-thumb  methods  in  the  office  in  question  and 
brought  about  the  development  of  a system  which  not 
only  safeguards  the  interests  of  the  firm,  but  also  in- 
sures the  placing  of  equitable  charges  against  clients  for 
services  rendered,  thus  putting  the  transaction  on  a bus- 
iness basis. 

The  first  requirement  was  to  provide  for  a record  of 
original  charges.  The  solution  of  the  problem  was  a slip 
that  contains  a space  for  the  file  number — every  matter 
has  a file  and  each  is  numbered — and  spaces  for  the 
time  at  which  the  work  on  the  particular  matter  was  be- 
gun and  finished.  This  slip  is  shown  in  Form  I.  Thq 
rest  of  the  card  (which  is  seven  by  eight  and  a half 
inches  in  size  and  is  printed  on  common  news  print) 
contains  printed  matter  to  facilitate  the  notation  of  the 
work  by  simply  drawing  a cross  through  the  proper 
words,  as  shown  in  the  accompanying  illustration.  A 
blank  space  at  the  bottom  provides  for  special  memo- 


134 


EFFECTIVE  SYSTEMS 


randa  wherever  the  task  is  outside  ordinary  routine  or 
has  been  attended  with  unusual  difficulty. 

These  time  slips  are  arranged  to  care  for  every  indi- 
vidual in  the  office,  except  members  of  the  bookkeeping 


FORM  1:  Each  worker  in  the  office  keeps  a daily  record  of  work  done 
on  each  case  by  simply  running  his  pencil  through  the  items  that  occupied 

his  time 


and  filing  staff,  and  each  individual’s  slips  are  distin- 
guished by  his.  number.  These  slips  are  filled  in  from 
moment  to  moment  through  the  day.  The  principals 
keep  record  of  their  own  time  when  they  are  engaged 
with  clients,  but  the  stenographers  keep  the  principals’ 
time,  together  with  their  own,  and  fill  in  slips  for  the 
principals  as  well  as  for  themselves  while  they  are  en- 
gaged in  taking  dictation.  These  daily  time  slips  thus 


PROFESSIONAL  COSTS 


135' 


containing  a record  of  the  whole  day’s  work,  are  col- 
lected by  the  cost  clerk,  who  first  stamps  on  them  the 
date,  and  then  enters  on  special  monthly  cards  (Form 
II)  the  total  time  consumed  by  each  individual.  A small 
memorandum  is  filled  in  to  show  how  much  time  each 
person  consumed  in  accomplishing  the  tasks  of  the  pre- 
vious day.  These  are  distributed  to  the  individuals  con- 
cerned and,  unless  an  explanation  is  called  for,  he  makes 
a note  of  how  he  spent  his  working  hours  and  destroys 
them.  Should  the  slip  show  an  error  in  office  record 
he  notifies  the  cost  clerk  and  the  correction  is  made. 

After  the  total  time  spent  by  the  individual  has  been 
entered,  the  original  slips  are  distributed  behind  guide 


NQi  D Al  LY-R  EC  Q R D month  of 

DATE 

HOURS 

DATE 

HOURS 

DATE 

HOURS 

DATE 

HOURS 

J 

9 

17 

25 

2. 

to 

18' 

26  ■ 

TOTAk  HOURS 
due: 

3 

11 

19: 

27. 

4 

12 

. 20 

28 

5 

13 

21 

29 

6 

14 

22 

30 

HOURS 

WORKED 

7 

IS 

23 

31 

8 

16 

24 

rwo. 

FWD. 

FWD. 

TOTAL 

FORM  II:  The  time  of  each  'person  in  the  office  is  entered  daily  on 
this  card.  The  number  of  hours  constituting  a full  month's  work  is  stand- 
ardized, and  continual  deficiency  or  excess  results  in  a rearrangement 


cards  that  bear  the  file  numbers.  Thus  behind  each  guide 
card  a series  of  slips  contains  a complete  record  of  all 
work  done  on  each  case,  in  the  original  handwriting  of 
the  person  who  did  the  work,,  with  the  day  and  time  when, 
the  work  was  done.  Whenever  it  becomes  necessary  to 


136 


EFFECTIVE  SYSTEMS 


render  a detailed  bill  the  slips  give  more  information  in 
more  convenient  shape  for  reference  than  the  old  docket 
method  could  possibly  furnish. 

The  salary  paid  to  each  junior  and  clerk  is  of  course 
known,  and  the  members  of  the  firm  themselves  deter- 
mine their  salary,  acting  on  the  assumption  that  they 


file  no.  MONTHLY  RECORD 

CLIENT  ftE  TO 

NO. 

TIME 

FAC 

COST 

DISB. 

NO. 

TIMEi 

FAC. 

cost 

r Disaj 

NO. 

TIME 

S FAC.  ( 

COST 

DISB. 

1 

FWD 

A1 

2 

17 

A2 

3 

MONTHLY  SALARY  OVERHEAD  CALCULATION 

FOR  MONTH  OF  191 

4 

5 

6 

NO 

SALARY 

VALUE 

TIME 

WORKED 

NO. 

SALARY 

VALUE 

TIME 

WORKED 

NO, 

SALARY 

VALUE 

TIME 

WORKED 

NO. 

SALARY 

VALUE 

TIME 

WORKED 

T 

8 

1 

17 

Q 

io 

2 

18 

3 

19 

12 

4 

20 

13 

6 

21 

22 

14 

7 

23 

15 

8 

24 

16 

9 

25 

TOTAL 

10 

23 

11 

27 

12 

28 

13 

29 

14 

30 

15 

31 

16 

32 

FORM  III  (upper  sheet) : The  cost  of  one  piece  of  business  is  entered 
monthly  on  this  card.  FORM  IV  (lower  sheet):  The  difference  between 
standard  and  actual  time  goes  from  this  card  to  “ overhead ” 


are  merely  hired  managers  of  the  business.  The  time 
value  of  every  office  worker  is  thus  ascertained,  and 
once  every  month  the  cost  of  each  piece  of  business  is 
brought  up  to  date  on  a card  printed  especially  for  the 
purpose  (Form  III).  The  slips  collected  up  to  date 


MONTHLY  OVERHEAD  CALCULATION  FOR  MONTH  OF 


PROFESSIONAL  COSTS 


137 


LJ  * 
III 

w 5 

Li  ~ 
c *" 


FORM  V ( upper  sheet):  Overhead  expense  items  other  than  indirect  labor , are  entered  on  this  card  every  month . 
FORM  VI  ( lower  sheet):  This  card  when  filled  out  gives  the  total  cost  of  a case 


138 


EFFECTIVE  SYSTEMS 


of  this  card  are  then  filed  away  until  the  conclusion  of 
the  matter,  when  reference  to  them  may  be  necessary. 

At  the  end  of  every  month  the  bookkeeper  prepares  a 
salary  overhead  card  (Form  IV)  from  the  data  shown 
on  Form  II.  The  difference  between  the  time  actually 
charged  to  each  person  and  the  time  which  would  repre- 
sent a full  month’s  work  is  charged  to  the  “overhead” 
account,  and  the  total  is  swelled  by  the  salaries  of  book- 
keepers, filing  clerks,  boys  and  other  employees  who  are 
not  directly  engaged  on  particular  pieces  of  business. 

This  salary  overhead  is  carried  to  the  general  monthly 
overhead  card  shown  in  Form  Y,  which  includes  a sum- 
mary of  all  overhead  expenses  for  the  period.  The  time 
charged  as  the  work  of  members  to  specific  matters  is 
written  off  at  once,  and  allowance  is  made  for  bad  debts. 
A percentage  of  overhead  expense  is  then  attained,  and 
provision  is  made  for  adding  this  overhead  monthly 
to  the  cost  of  each  individual  case  by  entering  a due 
percentage  on  a special  form  printed  on  the  back  of 
Form  III  and  illustrated  in  Form  VI.  The  actual  cost  is 
thus  known  and  the  total  from  the  last  monthly  card  is 
brought  forward  to  this  card.  Having  the  actual  costs 
of  any  case  always  at  hand,  it  is  a simple  matter  to  make 
equitable  charges  by  adding  whatever  percentage  of 
profit  seems  fair  under  the  circumstances.  If  a detailed 
bill  is  desired,  the  itemized  material  for  it  is  on  the  orig- 
inal slips,  and  although  the  relations  between  lawyers 
and  their  clients  are  based  essentially  on  confidence, 
there  is  no  question  but  that  the  reduction  of  charges 
to  a basis  similar  to  that  in  use  in  every  commercial  busi- 
ness rivets  the  faith  and  good  will  of  clients  to  the  firm. 

This  system  has  two  further  advantages:  By  carry- 
ing the  total  of  the  monthly  cards  into  a loose-leaf  record 
book  from  month  to  month,  a ‘‘work  in  process  ” account 


PROFESSIONAL  COSTS 


139 


may  be  opened  in  the  ledger,  and  the  exact  standing  of 
the  firm  on  any  balance  day  thus  ascertained.  Again,  if 
it  appears  from  this  book  that  nothing  has  been  done  in 
a specific  case  since  the  last  monthly  record  card  was 
made  up,  a “signal”  sheet  calls  attention  to  the  matter. 
This  signal  sheet  is  of  red  paper  to  differentiate  it  from 
ordinary  case  sheets.  On  it  appear  in  rotation  the  file 
number,  the  time  cost  and  disbursements  to  date,  and  the 
announcement,  “Nothing  has  been  charged  in  this  file 
for  a month.  Please  close. 9 9 This  is  handed  to  the  part- 
ner in  charge,  so  that  the  account  may  be  rendered.  Sim- 


TIME  AND  EXPENSE RECORD  FOR  WEEK  ENDING  191 

SEC  OTHER  feme 

OWNER  OF  ORDER 

M 

T 

W 

T 

F 

S 

OT. 

HRS. 

TOTAL 

AMT. 

CASH  EX. 

DRYMAt 

MISC. 

TOTAL 

RECEIVED®  IN  FULL  „ FOR  TIM  E AND  CASH  EXPENSE 

SIGNED  ( ) 

FROM  JAMES  & DAWSON,  ARCHITECTS 

FORM  VII:  On  this  card , used  by  every  person  in  an  architect's  office , 
are  entered  daily  reports  of  time  spent , material  used  and  cash  expenses . 
The  card  covers  one  week 


plicity  without  complication  in  details  forms  the  basis 
of  the  system,  and  this  firm  has  learned  that  equitable 
charges  founded  on  accurate  knowledge  win  the  good  will 
of  clients  to  such  an  extent  that  the  slight  extra  labor 
and  expense  are  more  than  offset. 

Applied  to  other  professional  lines,  the  same  care  in 


140 


EFFECTIVE  SYSTEMS 


cost  keeping  will  show  proportionate  results.  A large 
architectural  firm  in  the  middle  west  gathers  all  cost 
items  having  to  do  with  labor  or  materials  on  a single 
card  (Form  VII),  which  serves  also  as  a receipt  for 
wages  and  other  cash  expenses  incurred  by  the  worker 
and  chargeable  against  the  business.  This  compact  card 
is  used  by  every  member  of  the  concern — draftsman, 
building  superintendent  or  stenographer — and  covers  a 
period  of  one  week.  Items  are  posted  from  it  to  the 
proper  job,  wage,  material  and  expense  accounts  in 
the  ledger.  The  card  forms  the  basis  of  an  effective  cost 
system,  placing  every  charge  where  it  belongs. 

Doctor,  dentist  or  lawyer,  whatever  the  nature  of  the 
professional  services  you  offer,  you  can  adapt  a modified 
cost  system  to  your  needs.  Having  such  a system  in 
satisfactory  working  order,  you  may  feel  assured  that 
the  equitable  distribution  of  charges  resulting  will  bring 
increased  satisfaction  among  your  clients,  and  the  nat- 
ural consequences  of  better  and  bigger  business. 


rtj 


A SPIRIT  of  cooperation  means  “team  work”  and  some - 
*^thing  more.  It  is  a real  and  a great  force;  it  is  to  the 
business  house  what  “college  spirit”  is  to  a university , 
esprit  de  corps  to  a regiment , civic  pride  to  a city  and  patri- 
otism to  a nation . 


— Leslie  H.  Thompson 


XVI 


HOW  A BANKER  FIGURED 
HIS  COSTS 


By  Harry  N.  Grut 


A BANKER  telephoned  to  one  of  his  commercial  de- 
positors, 4 ‘ Drop  in  when  you  are  going  by  here  to- 
day or  tomorrow.  I’ve  just  been  looking  over  the 
monthly  statement  of  your  balance  and  want  to  see  you 
about  it.  We  lost  money  on  your  account  last  month.” 

The  depositor  came  over  post-haste — and  brought  with 
him  his  balance  statement  for  the  preceding  month.  It 
showed  an  average  daily  balance  of  $20,000.  Triumph- 
antly, he  laid  it  on  the  banker’s  desk. 

“You  were  looking  over  some  other  man’s  account 
when  you  called  me  up/’  he  said.  “You  can’t  be  losing 
money  on  my  account.  I’ll  bet  it’s  one  of  the  best  you’ve 
got— I carry  a balance  of  $20,000.” 

Then  the  banker  laid  before  the  depositor  an  analysis 
of  his  account — really  a cost  sheet — that  opened  his  eyes 
on  the  subject  of  banking ; on  what  a balance  really  means 
and  what  it  costs  a bank  to  do  business.  What  the  de- 
positor really  saw  was  the  bank’s  cost  system — made  up 
of  credit  and  debit  items  just  as  is  the  cost  sheet  of  a 
factory;  based  on  a tabulation  of  items,  of  the  cost  of 
handling  each  account  just  as  a factory’s  costs  are  built 
on  individual  time  tickets  and  individual  requisition 
items.  And  such  a system  is  just  as  necessary  in  a bank 
— to  show  the  banker  his  cost  of  doing  business,  to  pre- 


142 


EFFECTIVE  SYSTEMS 


vent  him  from  losing  money,  to  keep  him  in  profitable 
lines — as  it  is  for  the  manufacturer  or  merchant. 

As  the  customer  glanced  over  the  sheet,  the  banker  ex- 
plained his  viewpoint.  44 It  is  true,”  he  said,  4 4 you  had 
for  the  past  month  a daily  average  balance  of  $20,000. 
Nevertheless,  this  statement  shows  a loss  of  $7.13  and  an 
examination  of  the  account  for  three  months  shows  a 
loss  of  from  $5  to  $10.” 

The  depositor  gazed  on  the  statement  in  bewilder- 
ment. That  he  could  have  a daily  average  of  $20,000 
and  yet  have  the  bank  lose  money  on  the  account  was  in- 
consistent with  his  business  experience.  The  president, 
appreciating  how  little  the  average  depositor  knows  of 
the  actual  methods  and  practices  of  a bank,  went  on 
with  his  explanation : 

4 4 The  out-of-town  items  in  process  of  collection  or  in 
transit  for  the  month  amounted  to  $10,000.  This  left 
a balance  of  $10,000,  and  after  deducting  our  legal  re- 
serve fund  of  25  per  cent,  there  was  a net  balance  of 
$7,500.  In  other  words,  out  of  an  average  balance  of 
$20,000,  we  have  available  for  loans  only  $7,500.” 

4 4 Even  so,”  protested  the  depositor,  44I  don’t  see  how 
you  can  figure  a loss  of  $7.13 — or  any  loss  at  all.” 

4 4 You  will  note,” — the  banker  with  pencil  in  hand  was 
pointing  to  certain  items  on  the  analysis  report — 4 4 that 
we  paid  you  2 per  cent  on  the  $20,000',  or  $33.38,  for  the 
month.  Our  operating  expenses  on  the  account  totaled 
$15.00  so  that  the  actual  cost  to  us  of  handling  the  busi- 
ness was  $48.38. 

44Now,  for  our  earnings:  We  loaned  the  $7,500  at  5 
per  cent,  which  brought  us  in  $31.25  for  the  month,  and 
$10  more  can  be  added  as  exchange  on  collections.  You 
see  where  the  $7.13  loss  comes  in  ? It  is  a simple  matter 
of  subtracting  the  earnings  from  the  expenses.  ’ ’ 


BANK  COSTS 


143 


The  depositor  studied  the  figures  in  silence  for  several 
minutes. 

“Am  I to  understand,”  he  finally  asked,  “that  it  will 
be  necessary  for  me  to  increase  my  daily  average  very 
materially  in  order  that  you  may  make  a profit  on  my 
account  ? ’ * 

“Yes — and  no.  The  balance  should  be  increased  or 
it  might  be  possible  for  you  to  adopt  some  method  for 
quickening  your  transactions;  reduce  the  time  now’  re- 
quired for  handling  out-of-town  items — in  a word,  crys- 
tallize your  balances  more  quickly. 9 9 

“But  how  much  of  a daily  balance  ought  I to  carry?” 

“Well,  suppose  it  were  $50,000.  Here  is  the  way  it 
would  figure  out : Deducting  the  $10,000  in  out-of-town 
items  and  the  25  per  cent  reserve  would  leave  $30,000 
available  for  loaning.  At  5 per  cent  it  would  bring  us 
in  $125  for  the  month  and  the  exchange  would  easily  add 
$15  more,  or  $140  earnings.” 

“The  2 per  cent  we  pay  you  on  the  $50,000  amounts 
to  $83.33  and  the  operating  expenses  would  not  exceed 
$20,  or  a total  of  $103.33.  You  see,  we  have  a net  profit 
on  the  account  of  $36,67.” 

EXCHANGE  and  operating  costs  may  swallow  up 
the  bank's  profit  on  an  active  account — cost  sheets 
enable  the  banker  to  establish  a line  of  safety. 

The  banker  cannot  take  for  granted  any  item  or  ac- 
count, no  matter  how  profitable  it  may  look  to  the  out- 
sider. Like  the  manufacturer  or  the  merchant,  he  must 
know  exactly  what  it  costs  him  to  perform  a certain 
service  and  just  what  his  margin  of  profit  is — and  the  in- 
formation must  be  laid  before  him  at  frequent  intervals, 
enabling  him  to  take  steps  to  stop  a leakage  and  help  the 
depositor  to  quicken  up  a losing  account,  so  that  the 


144 


EFFECTIVE  SYSTEMS 


bank  can  afford  to  handle  it  on  a permanent  basis. 

A line  of  safety  must  be  established  for  every  account 
— a variable  line  that  must  be  watched  as  it  rises  and 
falls  from  month  to  month.  On  one  side  of  the  line  is 
a balance  sufficient  to  cover  all  commercial  requirements ; 
on  the  other  side  a loanable  balance  of  sufficient  size  to 
make  the  account  profitable. 

Each  year  the  size  of  the  daily  balances  is  a little 
larger  on  account  of  the  growing  practice  among  mer- 
chants of  sending  personal  checks  drawn  on  their  local 
banks  in  settlement  of  obligations,  instead  of  using  cur- 
rent exchange.  The  result  is  that  items  placed  in  transit 
for  collection  each  day  must  be  deducted  from  the  cus- 
tomers ’ daily  balance. 

A merchant,  for  example,  in  Aberdeen,  South  Dakota, 
sends  a check  drawn  on  a local  bank  to  the  wholesale 
house  in  Chicago.  It  takes  four  and  a half  days  at  the 
best  to  clear  the  check,  and  during  this  time  the  Chicago 
banker  deducts  the  amount  from  the  wholesaler’s  daily 
balance.  Such  items,  in  large  numbers,  play  havoc  with 
the  loanable  value  of  the  account  and  necessitate  the 
larger  daily  balance. 

To  determine  what  the  balance  of  each  customer  must 
be  to  make  his  account  profitable  requires  a careful  analy- 
sis that,  with  the  larger  banks,  has  resulted  in  the  or- 
ganization of  a separate  department.  Every  account  is 
examined  three  times  a month,  at  intervals  of  ten  days. 
At  the  end  of  the  month  summaries  are  made  and  laid 
before  the  president  so  that  the  executive  can  get  in 
touchf  with  the  depositor  whose  business  is  unprofitable 
and  point  out  to  him  what  steps  must  be  taken  if  he 
desires  to  continue  his  banking  relations  with  that  par- 
ticular institution. 

The  analysis  embraces  three  items:  the  average  daily 


BANK  COSTS 


145 


FORM  I:  On  this  card  the  account  of  each  depositor  is  carefully  analyzed , so  that  it  can  he  laid  periodically  on  the 

executive’s  desk  for  scrutiny 


146 


EFFECTIVE  SYSTEMS 


balance,  the  average  daily  amount  in  transit  and  the 
daily  loanable  balance.  Figures  for  the  first  item  are 
obtained  by  taking  the  actual  balance  as  shown  on  the 
ledger  for  each  day  during  the  month,  adding  the 
amounts  and  dividing  the  total  by  the  number  of  days. 

The  deposits  of  whatever  account  is  under  analysis  are 
recorded  on  a separate  sheet  (Form  I),  ruled  with  col- 
umns for  the  different  classes.  First  are  entered  the 
checks  on  Chicago  deposited  in  time  for  clearing.  These 
are  treated  as  cash.  In  the  second  column  are  entered  the 
checks  on  Chicago  received  in  the  afternoon,  too  late  to 
be  cleared  before  the  following  day.  Next  are  shown 
the  checks  on  New  York  City,  and  then  the  checks  on 
miscellaneous  points  throughout  the  country;  columns 
are  also  provided  for  the  amounts  of  exchange  paid  by 
the  depositors  and  the  cost  of  exchange  to  the  bank. 

At  the  end  of  the  month,  the  total  amount  in  transit 
is  divided  by  the  number  of  days  in  the  month,  thus 
showing  the  daily  average  in  transit. 

ANALYSIS  of  each  customer's  account  must  he  ac~ 
curate  and  thorough , for  the  margin  of  'profit  in 
the  hank's  business  is  often  extremely  narrow . 

This  form  was  adopted  after  several  years’  experi- 
menting and  does  away  with  the  laborious  method  for- 
merly in  use  of  listing  each  item  according  to  the  amount 
of  exchange  and  again  listing  it  according  to  the  time 
for  clearing. 

The  difference  between  the  items  in  transit  or  uncol- 
lected funds  and  the  average  daily  balance  (less  the  legal 
reserve)  gives  the  banker  the  loanable  balance.  And 
that  the  figures  may  be  accurate,  the  exact  cost  of  each 
operation  is  figured.  The  man  in  charge  of  the  analysis 
takes  three  months  of  the  regular  business  for  every 


BANK  COSTS 


147 


FORM  II:  The  cost  analysis  report  reaches  the  executive  head  on  this  form , and  he  knows  at  Gnce  whether  the  danger 

limit  has  been  reached 


148 


EFFECTIVE  SYSTEMS 


banking  point  in  the  country,,  figuring  the  actual  ex- 
change cost  and  dividing  it  by  the  volume  received  dur- 
ing the  period  for  each  point.  In  arriving  at  the  average 
cost  per  thousand  of  exchange,  and  where  the  business 
for  any  one  point  is  too  small  to  warrant  a flat  rate,  the 
cost  is  based  on  each  item. 

In  completing  the  analysis,  the  banker  takes  into  his 
reckoning  the  cost  of  exchange  on  out-of-town  items,  the 
interest  paid  on  daily  balances,  the  cost  of  transfers 
(this  usually  represents  the  market  value  of  New  York 
in  Chicago,  which  is  an  item  that  will  most  likely  vary 
with  all  banks),  and  the  general  operating  expenses.  In 
figuring  his  overhead,  the  banker  totals  all  his  expenses 
except  interest  on  balances — which  is  figured  separately 
in  each  case — and  divides  this  total  by  the  average  daily 
deposits  for  the  year.  The  result  shows  the  average 
rate  per  cent  the  business  costs  for  the  year. 

In  making  the  calculations  the  deduction  covering 
funds  in  New  York  is  omitted,  for  the  items  vary  with 
all  banks.  In  the  one  bank’s  practice  the  average  yearly 
balances  kept  in  New  York  banks  are  divided  by  the  aver- 
age deposits  for  the  year,  deducting  from  the  average 
balances  with  the  bank  of  the  account  under  analysis  the 
per  cent  thus  obtained  and  crediting  the  interest  re- 
ceived on  it  as  being  carried  in  New  York  for  the  use 
of  that  account. 

This  brings  the  analysis  up  to  the  point  where  it  shows 
the  loanable  value  of  the  account.  From  the  average 
daily  balance  is  subtracted  the  average  daily  amount  in 
transit,  together  with  charges  thereon,  and  then  the  25 
per  cent  legal  reserve  must  be  taken  out  and  the  remain- 
der is  the  amount  left  to  be  loaned. 

The  completed  analytical  report  as  laid  before  the 
president  (Form  II)  is  as  follows: 


BANK  COSTS 


149 


Clearing  house  items $54,000 

Out-of-town  items 86,900 


Daily  average  balance  on  basis  of  remitting 

down  to  $25,000  44,500 

Less  daily  loanable  total  in  transit  . . . 11,000 


$33,500 

Less  25  per  cent  reserve 8,375 


$25,125 


Value  thirty  days  at  5 per  cent  ....  $104.68 


Exchange  paid  to  bank 34.70 

Total  receipts $139.38 

Interest  at  2 per  cent  for  30  days  . . . $ 63.80 

Exchange  cost 34.70 

Cost  New  York  Exchange 15.70 

Cost  of  operating 30.00 

Total  expense $144.20 

Bank  received $139.38 

Bank  paid  out 144.20 

Bank  lost $ 4.82 


This  report  brings  before  the  president  of  the  bank 
the  fact  that  it  was  losing  $4.82  a month  and  it  was  for 
him  to  suggest  to  the  depositor  some  readjustment  that 
would  either  reduce  the  amount  of  the  items  in  transit 
or  increase  the  average  daily  balance  from  $44,500  to 
a point  that  would  show  a profit.  If  the  items  were  con- 
fined to  the  one  bank  or  even  to  local  banks,  very  likely 
an  increase  in  daily  balances  would  be  unnecessary.  If 
the  out-of-town  accounts  were  liquidated  by  current  ex- 
change, the  customer  would  have  a smaller  amount 
charged  against  his  balance.  These  expense  analyses, 
corresponding  to  the  cost  sheet  in  a factory,  bring  before 


150 


EFFECTIVE  SYSTEMS 


the  banker  in  forcible  and  simple  shape,  the  places 
where  his  business  is  weak  and  where  it  is  strong,  where 
it  is  making  money  and  where  it  is  losing. 


TN  BUSINESS  the  earning  of  profit  is  something  more  than 
*“*  an  incident  of  success.  It  is  an  essential  condition  of 
success , because  the  continued  absence  of  profit  itself  spells 
failure.  But  while  loss  spells  failure , large  profits  do  not 
connote  success . Success  must  be  sought  in  business  also  in 
excellence  of  performance;  and  in  business , excellence  of 
performance  manifests  itself,  among  other  things,  in  the 
advancing  of  methods  and  processes;  in  the  improvement  of 
products ; in  more  perfect  organization , eliminating  friction 
as  well  as  waste;  in  bettering  the  condition  of  the  working- 
men, developing  their  faculties  and  promoting  their  happiness; 
and  in  the  establishment  of  right  relations  with  customers  and 
with  the  community. 


— Louis  D.  Brandeis 


PART  IV— USING  GRAPHS 
AND  STATISTICS  IN 
BUSINESS 


Concentrate  Detail 


^HE  merchant  who  will  concentrate  his  busi- 
ness, who  will  concentrate  his  efforts,  who 
will  keep  himself  advised  of  the  tendency  of  de- 
mand and  accommodate  his  purchases  thereto, 
who  will  sell  for  cash,  will  have  something  in  this 
life  for  his  efforts. 

Day  by  day  we  are  coming  to  realize  our  de- 
pendence upon  each  other;  and  the  great  problem 
is  so  to  direct  that  dependence  that  our  efforts 
may  not  go  astray,  may  not  lose  their  direction 
and  be  dissipated — may  not  become  lost  motion, 
so  to  speak. 

For  that  reason,  concentration  in  its  every 
sense  is  becoming  more  and  more  essential,  not 
alone  to  the  large  business  man  wTho  must  con- 
sider every  infinitesimal  detail  in  these  days  of 
keen  competition,  but  to  the  smaller  business 
man  as  well,  who  is  being  brought  each  succeed- 
ing day  in  contact  with  the  fact  that  it  is  the 
economies  of  business  that  make  the  profits. 


A.  D.  BROWN 

President , Hamilton , Brown  Shoe  Company 


XVII 


BEHIND  THE  FIGURES 

By  A.  E.  Andersen 

AN  UNEXPLAINED  shortage  of  $15,000  in  the  raw 
material  account  for  the  year  just  closed  led  the 
general  manager  of  a specialty  concern  through  the  sales, 
purchasing,  cost  and  operating  departments  to  the  little 
registering  device  at  the  side  of  each  finishing  machine. 

The  product  was  sold  by  the  lineal  foot.  The  figures 
indicated  that  the  material  used  exceeded  by  $15,000 
worth  what  had  been  delivered  to  customers.  No  “ book- 
keeping errors”  were  found,  but  when  the  accuracy  of 
the  records  had  been  checked  and  proved,  the  reason 
for  the  loss  was  found  in  the  devices  for  registering  the 
quantity  of  product  turned  out.  These  were  out  of 
order.  For  more  than  a year  every  customer  had  been 
charged  for  much  less  than  had  actually  been  shipped 
because  the  counters  had  “slipped.”  Since  the  gifts 
were  of  finished  product  the  loss  was  nearly  double  the 
cost  of  the  raw  material. 

Right  figures  check,  guide  and  control  any  business. 
A suitable  accounting  system,  matched  to  the  size  and 
needs  of  the  business,  throws  to  the  surface  significant 
facts.  More — it  brings  to  the  man  at  the  head  of  the 
business,  grouped  and  related  details  which  otherwise 
would  escape  attention.  A market  man  in  Massachusetts 
learns  from  his  records  of  what  people  are  buying,  when 


154 


GRAPHS  AND  STATISTICS 


he  ought  to  push  fish  instead  of  meat,  or  pork  instead  of 
mutton.  He  is  getting  behind  his  figures,  just  as  is  the 
manufacturer  in  Chicago  who  sets  quotas  of  sales  and 
output  based  on  what  has  been  sold  and  made  in  the 
past  and  asks  “why?”  when  the  monthly  reports  fluc- 
tuate either  below  or  above  the  figures  set.  No  matter 
what  your  business  may  be,  you  can  set  your  accounting 
to  watch  the  significant  factors  in  that  business. 

VITAL  facts  which  show  the  ujp  or  down  tendencies 
of  a business  can  only  be  secured  by  going  behind 
the  bare  figures  and  reading  their  true  meaning. 

Different  managers  have  different  methods  of  finding 
these  significant  facts.  What  some  men  sense  by  experh 
ence  others  get  from  tabulated  and  charted  facts.  A 
factory  cost  accountant  put  in  a rather  elaborate  system 
for  the  superintendent.  He  collected  the  costs  of  steel 
for  the  blade,  the  wood  for  the  handle,  the  labor  and 
overhead  expenses  in  making  a kitchen  knife.  After  he 
had  collected  figures  for  a couple  of  months,  the  superin- 
tendent of  the  plant  took  a note  book  out  of  his  pocket 
and  said  that  they  agreed  pretty  closely  with  what  he 
had  figured  as  the  costs  on  the  different  grades. 

The  superintendent  knew  by  long  experience  the  aver- 
age total  cost  of  certain  classes  of  orders.  But  when  the 
cost  man  went  over  his  tabulated  figures  and  showed 
him  the  relative  department  charges  for  overhead  ex- 
penses, he  brought  to  the  superintendent’s  attention  a 
fact  which  he  had  not  before  realized — that  he  was  losing 
money  on  certain  classes  of  goods.  Only  by  department 
comparisons  could  such  a condition  come  to  light. 

A suitable  cost  system  in  a manufacturing  plant  may 
show  one  manager  the  significant  facts  in  his  business. 
Figures  may  prophesy  in  a merchandising  establishment, 


BEHIND  THE  FIGURES 


1 55 


when  the  records  are  planned  to  control  the  business. 
The  sales  manager  of  a large  jewelry  house  with  an  ex- 
tensive local  and  country  business  has  a plan  for  knowing 


MONTHLY  AND  ACCUMULATIVE  SALES 

1911  1912 


rfS<C.<33DuOOu 


Z*  ra  rf  ^ z * a!  I~’  >’  O 

U.  S «E^^«tflOZO 


FIGURE  VII:  The  chart  on  the  left  showed  one  manager  a slump  in 
sales.  The  reason  was  an  advertising  campaign  which  started  too  late. 
The  right-hand  section  shows  cumulative  sales  for  two  years 


what  is  going  on,  which  is  adaptable  to  other  lines.  Like 
other  executives,  he  has  found  that  charts  showing  gross 
sales  both  in  quantities  and  money  values  will  enable  him 


156 


GRAPHS  AND  STATISTICS 


to  know  definitely  what  the  sales  department  is  doing  in 
each  line  and  will  direct  him  to  the  weak  spots  in  his 
organization. 

Returning  on  one  occasion  from  a trip  abroad,  he 
found  conditions  in  the  business  somewhat  as  indicated 
by  the  chart  in  Figure  VII.  A summary  of  sales  by 
months  and  accumulative  sales  for  the  same  period  had 
been  contrasted  with  the  corresponding  figures  for  the 
corresponding  month  or  period  of  the  previous  year.  At 
the  beginning  of  January  quite  an  extensive  advertising 
campaign  had  been  prepared.  He  had  looked  for  a large 
increase  in  sales. 

But  as  the  chart  indicates,  when  he  returned  on  the 
last  of  May,  instead  of  an  increase  there  had  been  a 
gradual  decline  in  business  for  the  current  year.  In- 
vestigation showed  that  the  advertising  campaign 
planned  to  start  the  first  of  J anuary  had  not  been  begun 
until  late  in  March.  Had  he  not  compared  his  sales  he 
would  not  have  learned  at  once  the  cause  of  the  decline. 
As  it  was,  the  increase  of  business  which  is  shown  for  the 
months  of  July  and  August  on  the  charts  was  made  pos- 
sible by  the  prompt  application  of  additional  pressure 
on  the  sales  and  advertising  departments. 

Records  of  this  sort  reduced  to  a unit  basis  enable  the 
managers  of  all  kinds  of  businesses  to  watch  their  courses. 
Statements  and  charts  which  show  the  average  price 
realized  per  ton,  per  pound  or  per  barrel  by  steel,  glue 
and  brewing  companies,  enable  the  sales  managers  of 
these  respective  concerns  to  keep  in  touch  with  the  re- 
sults obtained  by  each  salesman.  Similarly  the  pay  rolls 
of  large  retail  stores  are  watched.  A record  is  kept  of 
each  clerk’s  business,  day  by  day.  Each  week  the  per- 
centage of  salaries  to  the  sales  made  is  calculated.  At 
any  time  the  superintendent  and  department  manager 


BEHIND  THE  FIGURES 


157 


know  what  the  pay  roll  stands  for  in  sales,  and  which 
clerks  are  efficient. 

Whenever  a business  man,  at  the  end  of  the  year  or 
the  month,  sits  at  his  desk  with  the  figures  of  the  period 
before  him,  one  of  the  obvious  things  he  watches  is  the 


FIGURE  VIII:  This  chart  showed  one  dealer  the  close  interdependence 
of  his  gross  and  net  profits , and  expenses.  Note  how  the  failure  to  reduce 
expenses  during  August  and  September  nearly  consumed  net  profits 


relation  between  expenses  and  the  amount  of  business 
done.  His  records  must  be  planned  to  show  comparative 
statements  and  charts  of  sales,  cost  of  sales,  expenses 
and  net  profits.  Unless  the  figures  get  to  him  in  this  form 


158 


GRAPHS  AND  STATISTICS 


it  is  difficult  to  see  how  the  outlay  matches  up  with  the 
amount  of  business  done. 

An  interesting  example  which  indicates  how  the  vice- 
president  of  a wholesale  house  follows  gross  profits  and 
departmental  expenses  is  shown  in  Figure  VIII.  Trade 
conditions  had  been  poor  and  one  of  the  department 
managers  failed  to  compare  his  departmental  expense 
with  his  gross  profits.  This  condition  continued  until  the 
month  of  August  when,  as  will  be  seen,  the  gross  profits 
were  practically  consumed  by  the  departmental  expense. 
Each  month  now  this  department  head  gets  his  compara- 
tive statement  of  gross  profits  and  departmental  ex- 
penses and  does  not  wait  for  the  figures  to  “push”  him. 
He  pushes  the  figures. 

FIGURES  are  of  no  value  in  and  of  themselves — inter- 
pretation by  the  executive  is  necessary  if  they  are 
made  to  reveal  their  inner  significance. 

Tradition  says  figures  do  not  lie.  Yet,  the  wrong  in- 
terpretation of  figures  may  throw  the  head  of  the  busi- 
ness completely  off  the  track.  Groups  of  facts  must  be 
considered  with  relation  to  the  right  groups  of  corre- 
sponding facts.  Both  sides  of  the  question  must  be  con- 
sidered in  the  tabulated  statistics. 

A sash  and  door  company  began  to  scrutinize  the  rec- 
ords of  its  twelve  salesmen,  mostly  young  and  middle 
aged  men.  The  low  gross  sales  of  one  of  the  older  sales- 
men at  first  led  the  president  to  believe  that  this  older 
man  was  being  kept  on  the  pay  roll  for  sentimental  rea- 
sons. But  when  he  took  the  sales  records  of  the  various 
products  and  compared  them  with  the  profits  obtained  on 
each  sale  he  changed  his  mind.  He  found  that  while 
the  older  man  sold  less  in  the  aggregate  than  his  fellow 
travelers,  the  total  profit  on  his  business  was  greater. 


BEHIND  THE  FIGURES 


159 


Because  of  his  experience,  he  knew  the  profitable  and 
unprofitable  lines.  The  comparison  of  the  two  sets  of 
figures  showed  how  the  company  had  gone  wrong  and  a 
new  sales  policy  was  inaugurated  at  once.  Every  sales- 
man was  instructed  to  concentrate  effort  on  the  profitable 
lines,  and  allow  the  low-profit  lines  to  sell  themselves  or 
use  them  to  push  the  more  profitable  specialties. 


FIGURE  IX:  This  comparison  of  the  repairs  and  renewals  required  by 
three  mining  machines  brought  to  attention  the  abuse  of  No,  3 and  resulted 
in  hiring  a more  careful  operator  for  it 


Look  into  any  group  of  figures  for  the  significant  items ; 
the  records  of  one  department  compared  with  the  others 
or  of  one  branch  compared  with  the  next  will  often  sug- 
gest a more  uniformly  profitable  way  of  handling  the 
business.  Lumped  figures  do  not  show  tendencies.  A 


160 


GRAPHS  AND  STATISTICS 


poor  machine  in  one  department  may  keep  up  the  total 
relative  cost  of  the  output  of  that  department.  One 
slow  line  of  goods  may  distort  the  figures  of  a store.  It 
is  better  to  individualize  accounts  wherever  possible  in 
order  that  each  may  stand  on  its  own  merits. 

The  president  of  a mining  company  suspected  that  his 
repair  and  renewal  account  was  higher  than  it  should  be, 
purely  because  of  his  general  knowledge  of  conditions. 
Not  until  he  had  compared  the  expenditures  for  repairs 
and  renewals  on  three  machines,  as  shown  in  Figure  IX, 
did  he  realize  that  two  of  the  machines  had  suffered  un- 
justly for  the  faults  of  one.  The  three  cutting  machines 
were  of  the  same  general  design  and  cost  and  were  in- 
stalled about  the  same  time.  When  the  facts  came  out 
that  machine  Number  3 had  much  greater  repair  and  re- 
newal expense  than  the  other  two,  it  was  discovered  that 
the  man  who  had  charge  of  this  machine  subjected  it  to 
much  rougher  usage  than  the  operator  of  either  of  the 
other  two  machines. 

Figures  that  mean  most  to  the  head  of  a business  must 
contain  all  the  elements  entering  into  a consideration  of 
an y particular  item.  Statements  and  charts  of  sales  and 
expenses  only  without  cost  of  goods  sold  may  prove  mis- 
leading. Business  is  done  for  profit,  not  for  sales  totals. 
Two  concerns  may  be  doing  substantially  the  same  gross 
business ; one,  however,  may  be  doing  its  greater  business 
at  a much  higher  cost.  ( 

The  Philadelphia  and  Baltimore  offices  of  an  electrical 
supply  house  had  substantially  the  same  total  of  sales. 
Yet,  when  the  annual  statement  came  in  it  was  found  that 
much  more  money  was  made  in  one  office  than  in  the 
other  in  spite  of  the  fact  that  the  volume  of  sales  was 
about  the  same  in  both.  When  the  figures  came  to  the 
general  manager  of  the  company,  he  saw  at  once  that 


BEHIND  THE  FIGURES 


161 


the  reason  Baltimore  netted  less  in  profits  than  Phila- 
delphia was  two-fold : supplies  had  been  sold  at  too  close 
a margin  of  profit  and  sales  and  office  salaries  were  dis- 
proportionate to  the  amount  of  business  done. 

Often  by  matching  department  with  department, 
branch  office  with  branch  office,  machine  with  machine  or 
clerk  with  clerk,  a better  understanding  can  be  obtained 
of  what  the  business  is  doing.  It  has  been  found  in 
many  businesses  that  comparative  expense  statements, 
furnished  to  branch  managers  with  the  comments  of  an 
executive  officer,  will  do  much  to  hold  down  cost.  On 
the  second  Tuesday  of  each  month,  the  manager  of  a 
soda-fountain  business  devotes  his  entire  day  to  the  study 
of  statements  and  graphic  charts.  Sales,  branch  and 
departmental  expenses  and  other  elements  entering  into 
profit  and  loss  accounts  come  under  his  supervision. 
One  of  the  reasons  why  the  company  can  do  business  at 
a low  cost  is  because  the  manager  knows  how  to  use  the 
figures  in  his  business. 

COMPARISON  of  results  in  different  branches  of  a 
business , or  different  departments , often  reveals  to 
the  executive  places  where  leaks  are  occurring. 

Studying  a statement  itemizing  the  expenses  of  one  of 
the  larger  branches  of  the  company,  the  head  noticed 
that  the  wages  of  the  unloading  and  shipping  depart- 
ment increased  in  the  four  months  ending  April  30th 
over  a similar  cost  for  the  slack  season  of  the  previous 
year.  Investigation  developed  that  the  manager  of  the 
branch  had  failed  to  cut,  from  eight  to  six,  the  men  in 
his  receiving  department. 

Receiving  and  shipping  expenses  at  the  Kansas  City 
branch,  greater  than  the  average  shipping  expenses  of 
the  seven  or  eight  other  branches,  drew  attention  to  an- 


162 


GRAPHS  AND  STATISTICS 


other  condition  which  might  not  have  come  to  the  man- 
ager’s notice.  Inquiry  showed  that  the  receiving  and 
storage  facilities  were  inadequate,  that  it  was  necessary 
to  handle  material  twice  in  unloading  and  storing,  that 
the  bins,  shelves  and  general  layout  were  poor.  By 
spending  five  hundred  dollars  for  the  improvement  of 
the  storeroom,  the  company  made  an  annual  saving  of 
sixteen  hundred  dollars  in  this  particular  item  of  ex- 
pense. 

Just  as  a sales  manager  may  get  from  his  records 
definite  knowledge  of  his  sales  and  profits,  so  the  manu- 
facturer can  devise  intelligent  summaries  of  expenses 
that  will  show  him  the  relative  costs  of  his  products. 
Overhead  expenses  often  go  up  mysteriously.  Unless  the 
expenses  are  put  on  paper  in  comparative  form,  it  is 
hard  to  get  behind  the  totals  and  find  out  just  what  is 
causing  the  increase  in  expense.  Non-productive  labor, 
salaries  of  timekeepers,  order  and  shop  clerks  and  sup- 
plies consumed,  are  all  details  which  the  head  needs  to 
group  in  such  form  that  ready  comparisons  may  be  made. 

Itemized,  comparative  figures  make  it  possible  to  find 
the  reason  for  high  overhead  expenses  in  the  monthly 
statement  of  a business.  Bulk  totals,  unless  seen  in  re- 
lation to  other  figures,  have  little  significance  unless  the 
man  who  watches  the  returns  keeps  the  basic  figures  in 
the  back  of  his  head,  and  compares  the  bulk  total  with 
that.  Last  year’s  figures  may  generally  be  taken  as  a 
basis  for  this  year’s  total.  Monthly  quotas  of  expenses 
sometimes  are  best.  Variations  from  standard  can  then 
be  checked  before  a wrong  policy  is  established.  The 
cost  of  lubricants  in  one  mine  showed  a marked  increase 
over  the  corresponding  period  of  the  previous  year. 
When  the  superintendent  investigated  he  found  that  the 
machine  operators  were  burning  lubricating  oil  costing 


BEHIND  THE  FIGURES 


163 


thirty  cents  a gallon  in  their  torches  instead  of  six-cent 
illuminating  oil. 

To  check  the  previous  waste,  each  machine  operator 
was  allotted  two  gallons  of  oil  per  day,  although  an  ad- 
ditional quantity  could  be  had  by  giving  reasons.  A 
second  cause  for  the  high  lubricating  cost  was  caught 
by  watching  the  amount  of  money  received  for  oil  bar- 
rels returned.  The  credit  item  for  returned  barrels 
seemed  smaller  than  the  year  before.  It  developed  that 
the  miners,  instead  of  tapping  a barrel,  had  been  knock- 
ing in  the  head  and  filling  their  pails  by  dipping  into  the 
barrel.  About  six  hundred  dollars  a year  was  saved  by 
stopping  this  practice. 

Comparative  statements  of  factory  expenses  are  always 
instructive.  In  one  case  when  such  figures  came  to  the 
attention  of  the  manager,  an  increase  of  $834.25  in  mis- 
cellaneous materials  and  supplies  uncovered  an  important 
source  of  waste.  The  foreman  of  Department  A had  in 
his  charge  a large  stock  of  materials  and  supplies,  many 
of  which  were  used  in  Department  B.  Unknown  to  the 
former,  the  head  of  Department  B had  taken  and  used 
wastefully  large  quantities  of  material,  thinking  that  the 
other  foreman  would  have  difficulty  in  explaining  the 
large  debit  difference  in  his  material  account.  Two  little 
columns  of  figures  brought  out  this  badly  organized 
spot  in  the  factory  where  inefficiency  existed  because  of 
the  jealous  rivalry  of  these  two  foremen. 

All  sorts  of  items  in  overhead  expense  can  be  cared  for 
if  the  totals  come  before  the  manager  not  in  the  form 
of  bulk  figures  but  itemized  under  separate  headings. 
The  electric-power-used  item  in  one  large  manufacturing 
concern  totaled  $42,300  for  one  year.  In  going  over  the 
figures,  the  manager  of  the  plant  thought  here  was  an 
item  which  would  cost  more  next  year  because  he  ex- 


164 


GRAPHS  AND  STATISTICS 


pected  an  increase  in  the  business  and  power  used  would 
increase  almost  in  proportion  to  an  increase  in  produc- 
tion. 

OVERHEAD,  material  costs , productive  and  non- 
productive labor — figures  properly  displayed  and 
rightly  read  will  show  abnormal  features  in  these  items . 

The  totals  stopped  him.  They  looked  big  for  the  work 
already  done.  He  went  through  the  plant  and  made 
some  rough  estimates  of  apparent  wastes  in  power 
here  and  there.  Then  he  talked  over  the  situation  with 
his  electrical  engineer.  He  found  that  by  overhauling 
his  wiring,  individual  meters  could  be  put  into  the  differ- 
ent departments  and  so  the  expense  of  current  used  in 
each  shop  determined.  The  manager  invested  nine  thou- 
sand dollars  in  these  changes.  And  the  first  ten  months 
of  the  current  year  indicated  that  in  spite  of  an  increase 
of  fifteen  per  cent  in  production  over  the  preceding  year 
the  total  power  cost  would  be,  roughly,  thirty-two  thou- 
sand dollars.  The  saving  in  power  alone  the  first  year 
would  pay  for  the  changes  made  in  the  power  equipment. 

Uust  as  properly  displayed  and  grouped  figures  will 
show  the  rise  and  fall  in  manufacturing  expenses,  so  they 
will  indicate  to  the  factory  superintendent  the  inter-re- 
lation between  productive  and  non-productive  labor — the 
totals  watched  most  jealously  in  every  manufacturing 
plant,  since  every  manager  knows  the  necessity  of  keep- 
ing down  the  ratio  between  non-productive  and  pro- 
ductive labor.  The  relative  importance  of  these  items 
escaped  one  manager  until  he  plotted  his  figures  in  a 
chart  like  that  shown  in  Figure  X.  Put  in  this  graphic 
way,  the  increase  in  non-productive  labor  for  April, 
1911,  was  apparent  at  a glance.  When  the  foreman  of 
the  department  was  asked  for  an  explanation  it  was 


BEHIND  THE  FIGURES 


165 


found  that  two  skilled  workmen  had  been  kept  on  the 
pay  roll  during  a slack  period  in  order  that  the  men 
would  be  available  when  business  increased. 

Such  records  are  history.  The  money  had  been  spent. 
But  it  was  easy  to  establish  a policy  that  thereafter  the 
foreman  should  not  settle  such  questions  himself  but 
should  confer  with  the  superintendent.  In  this  case  it 
was  found  that  the  particular  men  on  this  work  could 


FIGURE  X:  How  unusual  expenditures  can  be  corrected  by  a graphic 
monthly  analysis  is  shown  here.  Note  how  the  April  “peak”  in  foreman  s 
and  clerks'  salaries  was  brought  down  and  kept  at  a reasonable  level 


have  been  easily  replaced,  although  in  all  instances  this 
might  not  have  been  the  case.  In  November  of  the  same 
year,  that  chart  shows  non-productive  labor  in  Depart- 
ment C increased  nearly  one  hundred  dollars.  The 


166 


GRAPHS  AND  STATISTICS 


figures  were  prophecy,  not  history,  for  when  the  manager 
went  behind  them  he  found  that  they  represented  an  in- 
crease in  truckers  to  carry  out  a different  method  of 
moving  and  shifting  merchandise  which  was  not  neces- 
sary. 


CAPITAL  must  be  constantly  turning — locked  up  in 
slow  lines  it  acts  as  a dead  loss — reports  show  when 
it  is  producing  at  the  highest  rate  possible. 

“Let  every  dollar  of  capital  invested  or  borrowed  per- 
form its  full  duty,”  is  the  way  a prominent  banker  ex- 
presses the  need  of  keeping  inventories,  customers’  ac- 
counts, notes  receivable,  cash  and  working  liabilities  at 
the  minimum  and  at  the  same  time  producing  the  maxi- 
mum earnings.  These  are  conditions  which  the  managers 
of  a variety  of  concerns  may  look  for  in  their  statements. 
'Just  as  records  will  show  tendencies  in  sales  and  explain 
department  outputs  and  machine  efficiency,  so  the 
financial  condition  of  a business  may  be  watched. 

Under  normal  conditions  investment  in  working  assets 
of  such  businesses  as  hardware,  grocery,  paint,  shoes, 
jewelry,  drug,  dry  goods,  automobile  and  steel  can  easily 
be  determined.  Definite  relationship  must  exist  between 
capital  represented  in  working  assets  and  the  annual 
turn-over.  Records  can  be  drawn  from  different  sections 
of  the  business  to  show  “lock-up  in  working  capital”  at 
the  close  of  each  month.  Failure  to  keep  this  at  the 
minimum  necessitates  borrowing  and  paying  of  interest 
otherwise  unnecessary. 

One  manufacturer  traced  his  uninvested  working  assets 
through  his  record  of  uncollected  customers’  accounts 
and  inventories,  as  shown  in  Figure  XI.  Two  branches,  in 
St.  Louis  and  Omaha,  selling  belting,  pulleys  and  other 
supplies,  did  substantially  the  same  volume  of  business 


BEHIND  THE  FIGURES 


167 


and  operated  under  much  the  same  conditions.  The 
figures  showed,  however,  that  the  Omaha  branch  had  an 
investment  in  stock  and  accounts  $30,000  larger  than 
that  of  the  St.  Louis  branch.  When  the  situation  was 
sifted  down  to  its  elements,  it  was  discovered  that  the 
Omaha  branch  did  not  give  the  same  strict  attention  to 
stock  keeping  and  the  collection  of  accounts  as  did  the  St. 


FIGURE  XI:  Past  due  accounts  and  excessive  inventories  are  difficult 
to  control  in  many  industries.  By  comparing  his  Omaha  and  St.  Louis 
branches,  a manufacturer  of  belting  reduced  his  investment , as  shown  here 
on  a scale  of  $1,000  units 

Louis  office.  By  installing  a perpetual  inventory  and 
efficient  sales  records  and  revising  the  collection  methods, 
the  Omaha  situation  was  brought  up  to  the  St.  Louis 
standard. 


168 


GRAPHS  AND  STATISTICS 


In  like  manner  the  investment  in  the  several  classes  of 
assets  in  various  businesses  may  be  profitably  compared. 
Just  as  well  as  in  sales  and  expense,  the  head  of  the  busi- 
ness may  see  his  figures  in  a u per  unit ’ ’ form.  On  this 
uniform  basis,  the  relative  investment  in  different 
branches  can  be  easily  seen  and  the  working  assets  kept 
at  the  lowest  possible  points  in  all. 

Nor  is  it  in  the  large  business  alone  that  this  class  of 
records  is  worth  while.  A printer  doing  an  annual  busi- 
ness of  about  $25,000,  revised  his  storekeeping  and  ac- 
counting system  and  reduced  his  inventories  by  $1,500 
and  his  uncollected  customers’  accounts  by  $2,000.  This 
$3,500  has  enabled  him  to  pay  off  bank  loans  and  save 
about  $175  a year  in  interest.  The  plan  by  which  he  re- 
duced his  inventory  should  be  of  less  interest  to  every 
business  man  than  the  fact  that  a basic  principle  in  busi- 
ness is  careful  watch  over  the  investment  in  inventories, 
customers’  accounts,  and  notes  receivable. 

The  inventory  figure  in  any  business  is  a worth  while 
study,  not  only  from  the  investment  angle,  but  from  that 
of  sales  and  purchases.  Comparisons  of  sales,  purchases 
and  inventory  from  time  to  time  will  bring  out  facts  in 
the  business  and  help  to  maintain  their  correct  ratios. 
Records  that  show  when  to  buy  will  enable  the  purchaser 
to  keep  fresh  materials  and  stocks  on  hand,  as  well  as 
reduce  capital  tied  up  in  inventories. 

That  definite  figures,  rightly  grouped,  will  bring  before 
the  head  of  a business  a better  understanding  of  his 
whole  business,  these  various  experiences  of  other  man- 
agers show.  Any  business  man  may  take  a similar  point 
of  view  on  his  figures. 

Figures  that  prophesy  mean  the  success  or  failure  of 
men  in  business.  For  right  accounting  is  more  than 
history.  It  is  not  enough  to  know  what  has  been  done ; 


BEHIND  THE  FIGURES 


169 


records  should  show  what  should  be  done.  The  directors 
of  a large  eastern  manufacturing  concern,  with  inven- 
tories valued  at  ten  million  dollars,  voted  to  pay  an  ex- 
pert eighteen  thousand  dollars  a year  to  devise  means  of 
giving  them  figures  that  would  prophesy.  By  devising 
and  installing  a system  of  purchasing,  receiving  and 
storekeeping  that  would  enforce  minimum  stocks  of  raw 
materials,  goods  in  process  and  finished  products  without 
impairing  the  efficiency  of  the  business,  the  money  tied 
up  in  inventories  was  reduced  by  nearly  two  million  dol- 
lars. The  directors  proved  the  value  of  right  account- 
ing. 

Any  business  man  who  looks  upon  his  accounting  as 
mere  recording  and  not  as  a method  of  control  for  the 
details  of  his  business  misses  the  vital  significance  and 
use  of  the  facts  behind  its  figures. 


TT  IS  the  aim  of  every  manufacturer  to  supply  a better  grade 
A of  goods  at  a lower  price  than  the  other  fellow.  This  study 
to  maintain  a balance  between  grade  and  price  revolves  about 
the  details . System  is  one  of  his  greatest  aids  to  this  end. 

— Morris  Selz 

Founder,  Selz,  Schwab  and  Company 


XVIII 


GRAPHS  THAT  GUIDE 
YOUR  BUSINESS 

By  Kendall  Banning 


IN  a small  town  up  in  the  hills  of  New  Hampshire  is 
a small  manufacturing  plant  that  may  properly  be 
regarded  as  representative  of  its  class.  It  employs  about 
seventy-five  people,  operates  a factory  of  moderate  size 
and  equipment,  and,  in  its  external  aspects,  does  not 
differ  materially  from  the  thousands  of  small  factories 
that  are  scattered  throughout  the  country.  Yet  it  main- 
tains a department  that  might  be  considered  in  a measure 
as  a complement  to  the  “ planning  room”  that  is  such  an 
important  factor  in  the  Taylor  system  of  shop  manage- 
ment, and  to  it  is  credited  a large  part  of  the  unusual 
efficiency  that  makes  the  factory  conspicuous.  For  want 
of  an  authoritative  term,  this  department  is  known  as 
the  ‘ 4 curve  room.” 

It  is  the  function  of  this  curve  room  to  keep  graphic 
record  of  the  activities  of  every  phase  of  the  business. 
This  is  done  by  means  of  charts,  ranging  from  forms  of 
ordinary  size  that  may  be  kept  in  the  correspondence 
files,  to  “graphs”  the  size  of  large  wall  maps,  that  are 
mounted  on  frames  and  operated  similarly  to  the  maps 
and  drawings  that  are  part  of  the  equipment  of  nearly 
every  large  drafting  office.  Upon  these  graphs  are  kept 
annual,  semi-annual,  quarterly,  monthly,  weekly,  daily 
and  even  hourly  reports  of  the  progress  made  by  the 


PICTURING  THE  BUSINESS 


171 


departments,  their  costs,  their  output,  their  overhead 
costs,  and  the  many  detailed  statistics  that  are  needed 
to  keep  the  executive  heads  of  the  plant  in  constant  and 
accurate  touch  with  each  item  of  expense,  sales  and  pro- 
duction. From  the  information  thus  tabulated,  the 
management  establishes  standards  by  which  the  work  of 
the  factory  is  maintained,  and  is  enabled  to  make  pro- 
vision for  increases  or  decreases  in  the  volume  which  it 
turns  out  by  observing  the  ‘ 4 tendencies’ 9 as  they  appear, 
in  picture  form,  on  the  various  chart-reports. 

GRAPHS  in  office,  store  and  factory  are  pictures 
of  the  figures,  bringing  out  plainly  the  high  and 
low  spots  in  production — net  results  visualized . 

In  a lesser  degree,  the  graph  is  being  used  in  many 
business  offices — principally  for  indicating  “tendencies” 
that  serve  as  guides  in  making  estimates.  In  the  case 
of  the  present  plant,  however,  over  three  hundred  dif- 
ferent records  are  kept  by  this  map  form.  In  some  cases, 
two,  three  and  even  many  more  different  but  co- 
related records  are  kept  on  a single  sheet  for  purpose  of 
economy.  The  actual  figures  that  serve  as  the  basis  for 
these  graphs  are,  of  course,  kept  in  the  files  after  the 
usual  manner.  While  the  graphs  are  accurate,  and,  so 
far  as  possible,  show  the  detailed  figures,  they  do  not  in 
all  cases  provide  for  the  exact  numbers,  although  they 
represent  these  figures  and  indicate  where  they  may  be 
found  should  more  specific  data  than  that  which  appears 
on  the  charts  be  required.  While  it  is  not  probable  that 
such  an  extensive  use  of  graphs  would  be  practical  for 
every  business,  it  is  obvious  that  such  a system  for  pre- 
senting records  is  of  great  value  because  of  the  oppor- 
tunities for  comparison  with  the  corresponding  periods 
of  former  years  and  months,  that  it  makes  possible. 


172 


GRAPHS  AND  STATISTICS 


In  the  case  of  this  particular  factory,  the  exact  figures 
required  for  the  maintenance  of  the  various  charts  are 
gathered  daily,  and,  in  a few  instances,  at  shorter  in- 
tervals, by  a clerk  who  is  one  of  the  staff  of  three  em- 
ployed in  the  curve  room.  The  data  in  these  reports  are 
then  transferred  to  the  graphs  in  pencil  form,  or  are 
“plotted  in,”  to  use  the  term  of  the  drafting  room.  To 
insure  accuracy  in  this  work,  one  draftsman  calls  off  the 
figures  to  his  co-worker,  who  plots  them  in  with  pencil ; 


FIGURE  XII:  This  specimen  section  of  a graphic  map  eight  feet  long 
shows , by  means  of  colored  lines , the  actual  daily  costs , the  average  costs 
for  the  month  and  the  “ standard ” cost 


the  positions  are  then  reversed  and  the  process  repeated, 
so  that  each  man  checks  up  the  other’s  work.  Twice  a 
day  the  chief  of  the  curve  room  goes  over  these  charts 
and  draws,  in  colored  ink,  the  various  lines  that  represent 
the  figures  that  are  required  for  record. 


PICTURING  THE  BUSINESS 


173 


One  of  the  most  important  features-  of  this  tabulating 
work,  however,  is  the  task  of  figuring  out  and  charting 
the  “average”  and  the  “standard”  lines,  both  of  which 
are  extensively  used  to  serve  as  the  basis  of  comparison. 
In  Figure  XII,  for  example,  which  shows  a detail  of  one 


FIGTJRE  XIII:  On  the  “production”  graphs  are  recorded  significant 
data . This  chart,  for  example,  shows  how  many  tons  of  liquor  were 

produced  and  how  many  tons  of  salt  were  used 


of  the  cost  maps,  the  heavy  broken  lines  indicate  the 
actual  costs  of  the  items  named  in  the  space  provided 
on  the  left,  as  recorded  from  day  to  day.  The  dotted 
lines  that  run  through  the  daily  cost  lines  indicate  the 
monthly  4 ‘ average  ’ ’ of  cost ; in  the  original  charts  these 
monthly-average  lines  are  further  distinguished  from  the 
others  by  the  use  of  red  ink.  These  “average”  cost  lines 
are  figured  every  day,  in  order  to  show  clearly  at  any 
time  the  actual  costs  on  any  day  as  compared  to  the 
average  for  the  month  up  to  that  point.  But  these  sta- 
tistics are  given  still  greater  value  by  indicating,  by 
means  of  straight  blue  lines,  the  “standard”  costs. 


174 


GRAPHS  AND  STATISTICS 


Thus  the  “actual,”  “average”  and  “standard”  costs  of 
each  item  of  the  business  are  shown  in  map  form  in  such 
succinct  and  condensed  way  that  any  variation  is  made 
immediately  apparent.  When  the  activities  of  every  de- 


FIGURE  XIV:  The  tendencies  of  “ production ” and  “profit”  as  repre- 
sented on  this  chart , are  of  great  value  in  making  up  estimates  for  ensuing 

seasons 


partment  are  similarly  reduced  to  graphic  form,  it  is  a 
comparatively  simple  task  for  the  management  to  keep 
in  accurate  touch  with  the  progress  of  the  plant  by  a 
daily  visit  to  the  curve  room,  where  the  records  are  kept 
ready  of  access. 

Most  of  the  charts  are  eight  feet  in  length  by  about 
two  feet  in  height — a size  sufficient  to  contain  a continu- 
ous daily  curve  for  one  year.  They  are  mounted  in 
wooden  frames,  after  the  manner  familiar  in  architects’ 


PICTURING  THE  BUSINESS 


175 


and  contractors’  offices,  and  are  suspended  from  the 
ceiling. 

These  records  are  particularly  useful  in  picturing  the 
output  of  a plant.  In  Figure  XIII,  for  example,  is  illus- 
trated the  method  by  which  the  production  of  various 
departments  is  tabulated  both  from  day  to  day  and  from 
week  to  week  during  the  period  of  a month.  The  ‘ ‘ aver- 
age pounds  salt  per  ton  weekly”  is  indicated  by  a series 
of  straight  lines  that  extend  over  weekly  periods  instead 


IAN.  1912  PCS. 1912  MAR.1912  APR.1912  MAY  1912  JUNK  1912  JULY  1012  *110.1912 


wEEKeNo.No  8 


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EXPENSE  it: 

11 

frrf  H 

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IX.  TOTAL  COST  10  W H 

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;HH 

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SELLING  ^ 

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FIGURE  XV:  With  charts  like  this  weekly  “expense”  graph , it  is 
possible  to  note  digressions  from  the  normal  and  detect  leaks  before  they 
assume  large  proportions 

of  over  daily  periods  by  which  the  “tons  liquor  pro- 
duced” is  indicated  at  the  top  of  the  chart.  The  figures 
which  determine  the  make-up  of  these  charts  are  col- 
lected every  day  from  the  factory,  and  upon  these  figures 


176 


GRAPHS  AND  STATISTICS 


the  chart  record  is  based.  How  these  figures  compare 
with  the  standard  production  is  indicated  by  the  straight 
line  (on  the  original  shown  in  blue)  that  is  established 
on  the  basis  of  former  records. 

Similarly,  in  Figures  XIV  and  XV  are  represented 
data  that  the  management  of  the  plant  demands,  and 
that  make  evident  many  fluctuations  that  are  not  always 
so  apparent  from  the  ordinary  type  of  report  that  con- 
sists merely  of  comparative  figures  in  parallel  columns. 

PRODUCTION  data  of  past  years  become  standards 
by  which  subsequent  results  are  gauged — graphic 
charts  which  set  quotas  and  guide  railway  policies. 

It  is  obvious  that  such  a system  of  tabulating  records 
is  of  especial  value  to  the  management  in  establishing 
standards  of  work  and  of  cost,  and  in  providing  for  re- 
current fluctuations  of  the  markets.  For  instance,  a 
demand  for  the  plant’s  product  may  vary  with  the  differ- 
ent seasons  of  the  year — a condition  that  would,  of 
course,  be  apparent  on  the  graph. 

From  the  records  of  past  years,  the  management  is  en- 
abled to  determine  the  “ quota”  for  each  period  and  to 
express  this  standard  on  the  graph  by  means  of  a 
straight  blue  line  extending  through  the  period  in  ques- 
tion. In  the  same  way,  it  is  possible  to  reduce  the  vari- 
ous costs  of  production  to  standard  limits  and  thus  to 
check  any  undue  excesses  before  they  assume  dangerous 
proportions.  It  has  been  through  these  advantages  that 
the  factory  in  New  Hampshire  has  eliminated  many  of 
the  extravagances  and  wastes  that  mar  the  efficiency  of 
so  many  small  plants,  but  which  are  usually  uncorrected 
merely  through  ignorance  on  the  part  of  the  manage- 
ment that  any  leaks  exist.  The  use  of  such  graphs  is 
valuable  in  warning  the  management  of  exceptional  con- 


PICTURING  THE  BUSINESS 


177 


ditions  in  the  plant  and  in  making  it  possible  to  provide 
for  future  conditions  that,  judging  from  the  records  of 
the  past,  may  reasonably  be  expected. 

Although  used  to  advantage  by  all  businesses,  small  as 
well  as  large,  graphs  have  a peculiar  value  in  concerns 
whose  magnitude  is  such  that  the  management  is  not  in 
direct  touch  with  all  departments.  A graphic  picture  in 
such  cases  forestalls  the  necessity  of  running  with  tedious 
care  through  long  columns  of  figures,  whose  significance 
may  even  then  be  lost.  Some  of  the  leading  railroads  of 
the  country  have  learned  to  make  good  use  of  the  graph. 

The  principles  and  nearly  all  of  the  details  of  railway 
accounting  are  prescribed  by  the  Interstate  Commerce 
Commission.  By  law  the  railroads  are  required  to  fol- 
low the  instructions  of  the  Commission  as  to  when,  how, 
and  what  they  shall  report.  The  returns  for  expenses, 
however,  are  not  so  complete  as  the  other  figures,  nor  are 
they  comparable  between  different  railroads  or  different 
sections  of  the  country  because  of  striking  differences  in 
the  division  of  traffic  between  passenger  and  freight,  and 
differences  in  physical  and  operating  conditions.  The 
railroads  have  been  left  largely  to  their  own  initiative 
and  resourcefulness,  therefore,  in  developing  a system 
for  checking  costs  and  utilizing  their  facilities  and 
equipment. 

One  railroad  in  the  East  has  developed  the  use  of  the 
graph  to  a state  of  high  efficiency.  Charts  in  this  con- 
cern are  prepared  on  thin  paper  so  that  blue  prints  may 
be  made,  and  regularly  each  month  as  they  are  brought 
up  to  date,  copies  are  furnished  to  the  general  and  divi- 
sion officials.  It  has  been  found  that  the  charts  rouse  a 
great  interest  in  the  returns  and  inspire  keen  rivalry 
between  departments  and  divisions. 

Figure  XVI  is  a sample  of  the  value  of  these  charts. 


178 


GRAPHS  AND  STATISTICS 


It  gives  a bird’s-eye  view  of  the  operation  of  a freight 
station  employing  sixty  or  seventy  men  and  handling 
from  one  thousand  to  sixteen  hundred  tons  of  freight 


FIGURE  XVI:  This  graph  follows  the  monthly  changes  in  the  cost  of 
operating  a freight  station.  Compared  with  the  outlay  and  results  for 
preceding  months  and  years , poor  or  efficient  management  shows  up  sharply 


daily.  At  large  stations  the  agent  has  each  morning  a 
memorandum  statement  showing  the  pay  roll  expense  of 
the  previous  day,  the  tonnage  handled,  and  the  cost  per 
ton.  For  every  station,  a monthly  statement  is  prepared 


PICTURING  THE  BUSINESS 


179 


and  “graphed,”  with  a final  graph  summarizing  the 
totals  and  general  average  for  all  freight  stations. 

The  facts  in  the  operation  of  a yard  where  freight 


FIGURE  XVII:  The  startling  pay  roll  advance , and  the  increase  in  labor 
and  engine  costs  per  car , after  July , 1910 , would  normally  be  danger  signals 
for  the  executive . The  rise  was  really  due  to  extensive  terminal  alterations 


trains  are  classified  are  shown  in  Figure  XVII.  The  cost 
per  car  handled  varies  widely  in  different  yards  on  ac- 
count of  the  differences  in  facilities  and  the  extent  of  the 
classification  made  necessary  by  the  character  of  traffic 


180 


GRAPHS  AND  STATISTICS 


and  the  location  of  the  yard  with  respect  to  other  divi- 
sions, junctions  and  connecting  roads.  The  value  of  the 
statistics  lies  in  comparing  the  current  records  of  each 
yard  with  its  record  in  previous  months  or  previous 
years.  Each  yard  is  charted  separately,  but  for  the  in- 
formation of  the  officials  one  chart  is  prepared  showing 
the  results  comparatively  for  all  yards. 

Other  charts  of  a similar  kind  are  prepared  by  this 
railroad  and  used  with  valuable  results  to  show  the  con- 
ditions of  operation  in  every  department  and  division. 
The  curves  give  instantaneous  impressions.  They  make 
it  possible  for  the  mind  to  take  in  quickly  a long  series 
of  related  facts,  and  both  the  actual  and  relative  changes 
in  each  when  compared  with  the  others  and  with  differ- 
ent periods.  Briefly,  they  give  the  maximum  of  in- 
formation with  the  minimum  of  mental  effort,  and  they 
are  replete  with  corrective  suggestion. 


$3 


A SUCCESSFUL  man  must  know  his  business.  He  mus 
apply  this  knowledge — he  must  work,  and  he  must  work 
to  the  best  advantage.  And  to  work  to  the  best  advantage  he 
must  work  with  system . 


— John  H.  Converse 


XIX 


HOW  TO  CONTROL 
EXPENSE  ITEMS 

By  Edward.  L.  Wedeles 
Treasurer,  Steele  Wedeles  Company 

AN  OFFICE  boy  earning  three  dollars  a week  once 
proposed  an  economy  that  saved  onr  house  a 
thousand  dollars  a year.  He  came  to  my  desk  and 
broached  a plan  that  had  never  occurred  to  us:  “Why 
can’t  we  send  acknowledgments  by  postal  card,  instead  of 
by  letter  ?” 

At  first  there  seemed  to  be  objections  to  this  method, 
chief  of  which  was  the  publicity  it  might  give  to  the 
affairs  of  merchants  in  small  towns,  but  after  we  put 
the  plan  into  operation  we  never  had  a complaint.  We 
had  been  spending  a thousand  dollars  a year  for  nothing. 

Subsequently  an  idea  occurred  to  us:  “Why  make 
any  acknowledgment  at  all  ? All  remittances  reach  us  by 
check  or  draft,  wrhich  the  remitter  gets  back  with  our  in- 
dorsement and  the  stamp  of  the  bank  through  which  it 
is  paid.  Isn’t  this  enough?” 

Again  we  changed  our  method,  and  since  that  time  we 
have  not  sent  out  even  the  postal  cards.  Only  in  special 
instances  do  we  now  acknowledge  remittances.  Our  cus- 
tomers understand,  and  our  business  goes  just  as 
smoothly  as  before,  with  the  saving  of  a thousand  dol- 
lars or  more,  not  to  mention  the  cutting  off  of  a great 
volume  of  office  work. 

At  another  time  we  cut  expenses  materially  by  pack- 


182 


GRAPHS  AND  STATISTICS 


in g certain  goods  in  cartons,  instead  of  wooden  boxes, 
as  we  had  always  done.  A trial  of  the  new  method 
demonstrated  that  it  not  only  reduced  the  expense,  but 
gave  just  as  much  satisfaction,  if,  indeed,  not  more. 

EXPENSE  analysis  is  an  important  part  of  the 
executive's  duty — classification , tabulation  and 
comparison  aid  him  in  locating  hidden  items  of  waste. 

So,  all  through  the  detail  of  a business,  there  is  oppor- 
tunity to  analyze  expense  and  cut  it  without  disturbing 
the  organization  or  the  service  to  customers.  New  ideas 
may  seem  revolutionary  at  first  and  you  are  disinclined 
to  adopt  them.  Often  your  only  reason  for  failing  to  do 
so  is  purely  sentimental.  We  had  been  paying  a thou- 
sand dollars  a year  in  postage  largely  from  sentimental 
reasons,  yet  when  we  cut  off  this  expense  the  sentiment 
vanished  and  no  one  seemed  to  care. 

Initiative  is  just  as  necessary  in  handling  expense  as 
in  selling  goods.  A man  gets  into  a rut  of  expense  and 
needlessly  spends  large  sums  because  he  does  not  look  for 
a different  way.  Therefore,  anything  that  will  help  him 
to  think,  will  reduce  expense.  Anything  that  will  keep 
expense  items  continually  before  him,  will  help  him  con- 
trol this  part  of  his  business.  He  cannot  always  have  a 
bright  office  boy  to  clip  a thousand  dollars  here  and  there 
from  the  annual  total,  but  he  can  always  have  graphic 
records  to  confront  him  and  suggest  the  need.  The  more 
graphic  the  record,  the  more  suggestive. 

Expenses  eat  up  a business  unless  controlled  and 
checked.  Money  slips  away  easily  in  a thousand  channels 
that  never  cease  flowing.  The  demands  on  the  cash- 
drawer  are  incessant.  Unless  there  is  vigilance,  the  ex- 
pense outgo  will  exceed  the  income,  and  presently  the 
drawer  will  be  emptied. 


EXPENSE  CONTROL 


183 


In  every  establishment  there  are  two  kinds  of  expense. 
On  the  one  hand  you  have  productive  expense,  which  is 
the  investment  of  money  in  salesmanship,  labor,  rent,  ad- 
vertising, and  all  those  tangible  and  intangible  commodi- 
ties that  go  to  make  up  the  conduct  of  an  establishment. 
It  is  an  outgo  that  brings  dividends,  directly  or  indi- 
rectly. The  principal  items  of  productive  expense  may 
be  likened  to  the  parts  of  a machine ; the  smaller  items 
are  the  oil  that  keeps  the  whole  machine  running 
smoothly. 

On  the  other  hand,  you  have  expense  which  is  waste, 
though  it  often  masquerades  under  false  colors.  It  is 
the  money  that  gets  away  without  bringing  any  return 
whatever.  It  is  the  drain  that  saps  the  life  of  a busi- 
ness and  perhaps  destroys  it.  Not  always  is  this  kind 
of  expense  easily  detected,  for  it  may  be  cleverly  hid- 
den. An  incompetent  or  lazy  employee  may  give  in 
service  less  than  he  receives  in  salary;  a team  may  be 
idle  for  a day ; an  advertisement  may  be  poorly  devised 
and  cost  more  than  it  returns  in  business.  These  losses 
are  more  difficult  to  discover  than  the  actual  waste  of 
some  commodity  that  can  be  weighed  or  measured,  but 
they  are  none  the  less  non-productive  expense. 

To  distinguish  between  these  two  varieties  of  expense, 
therefore,  is  important.  To  do  so  requires  the  exercise 
of  the  intellect  in  a double  capacity ; first,  judgment ; sec- 
ond, system. 

The  line  of  demarcation  may  be  hard  to  find.  For  ex- 
ample,. artificial  light  is  a productive  expense,  because 
without  it  the  transactions  of  store  or  office  would  cease. 
But  just  how  much  light  is  needed  is  a different  question. 
Should  there  be  ten,  twenty  or  thirty  lamps'?  Can  two 
use  the  same  light  ? These  are  matters  to  be  determined 
by  the  judgment,  not  by  bookkeeping  or  statistics.  Eye- 


184 


GRAPHS  AND  STATISTICS 


sight,  health,  efficiency,  are  all  to  be  considered.  No 
mathematics  will  determine  for  you  just  where  the  light 
bill  ceases  to  be  a productive  expense  and  becomes  non- 
productive. 

But  take  the  two  electric  light  meters,  each  supplying 
the  same  number  of  lamps  under  the  same  conditions, 


{ 


FIGURE  XVIII:  This  chart  shows  how  expense  once  it  is  classified  can 
he  supervised  and  controlled  by  means  of  comparative  reports 


and  let  one  show  double  the  expense  of  the  other  in  a 
given  period.  The  question  is  no  longer  one  of  judg- 
ment, but  of  system.  Indeed,  it  must  be  system  itself 
that  discovers  for  you  this  very  wasteful  expense.  You 
may  have  the  best  judgment  in  the  world  on  all  matters 
involving  business  logic,  but  if  you  have  an  inadequate 
expense  system  the  drain  on  the  cash-drawer  will  go  un- 
checked. 

A satisfactory  system  by  which  a managing  executive 
may  watch  and  control  the  expense  of  his  establishment 
involves  three  things : classification,  tabulation,  compari- 
son. These  make  up  the  means  of  discovering  the  leaks 


EXPENSE  CONTROL 


185 


in  expense,  so  far  as  ink  and  paper  can  show  them. 

In  classification,  it  is  scarcely  possible  to  go  too  much 
into  detail.  The  modern  tendency  is  to  divide  and 
subdivide  expense  outgo  until  there  is  no  possibility  of 
classifying  it  further.  It  is  only  through  these  minute 
classifications  that  tabulation  and  comparison  have  their 
full  value.  For  example,  take  the  electric  light  meters 
just  referred  to.  Suppose  no  individual  record  was  kept 
of  each  meter,  but  all  were  charged  against  one  general 
account,  light.  The  waste  would  go  on  undetected. 
Carry  the  illustration  further.  Suppose  that  individual 
records  were  kept  of  each  meter,  but  not  tabulated.  Or 
suppose,  again,  that  the  meters  were  all  classified  sepa- 
rately and  tabulated,  but  no  one  made  the  comparison. 
These  three  elements,  you  see,  are  vitally  connected  one 
with  another. 

CLASSIFICATION  of  all  expenses  so  that  the  un- 
tagged items  are  insignificant — this  is  the  basis  of 
any  satisfactory  system  of  controlling  them. 

I believe  it  possible  to  classify  business  expense  to  the 
point  where  the  untagged  items  are  almost  infinitesi- 
mal. In  our  own  business  we  classify  and  tabulate 
ninety-nine  and  eight-tenths  per  cent  of  expenses. 

Expense  items  reach  my  desk  daily  in  the  form  of 
entries  in  two  books  which  classify  general  expense  and 
sundry  expense.  These  books  are  ruled  like  a double- 
column journal,  but  are  divided  into  accounts  like  a 
ledger,  a certain  number  of  pages  being  set  apart  for 
each  classification  of  expense.  A bookkeeper  posts  these 
books  from  the  general  cash  book,  entering  items  in  the 
left-hand  column,  and  in  the  body  of  the  page  a full 
identification  or  explanation  of  the  item. 

The  accounts  are  arranged  alphabetically,  and  indexed. 


186 


GRAPHS  AND  STATISTICS 


The  classified  and  general  expense  accounts  are  as  fol- 
lows : 


Advertising,  including  only  general  advertising  not  subject 
to  classification  against  particular  brands  of  goods 
Agencies,  embracing  reports  of  all  kinds  on  customers 
Attorneys’  fees  and  court  costs 
Brokerage,  including  travelers’  salaries  at  branches 
Teaming  done  by  teams  other  than  our  own 
Charity,  covering  contributions  to  institutions  and  the  like 
Cost  books,  or  daily  price  sheets  sent  to  travelers 
Fuel 

Fixtures  and  tools,  including  office  furniture,  alterations  in 
partitions  or  railings,  and  smaller  tools  and  appliances, 
such  as  hammers,  saws,  etc.  Larger  apparatus  and 
implements,  such  as  typewriters  and  adding  machines,  are 
charged  to  property  accounts 
Insurance 
Light 

Mail  order  department 

Meals,  embracing  expenses  of  employees  working  overtime 
Office  salaries,  covering  wages  of  every  kind  except  those 
in  the  shipping  department,  which  are  charged  to  sundry 
salaries 
Power 
Postage 
Rent 

Sundry  salaries 
Stationery 

Sundries,  unclassified  in  this  book 
Taxes 

Teaming,  by  our  own  wagons 

Telegrams 

Telephone 

Travelers’  salaries,  including  those  of  buyers,  department 
managers  and  the  officials  who  control  them.  In  our 
business  we  have  no  account  directly  representing  trav- 
elers’ traveling  expenses,  for  we  allow  our  travelers  a given 
sum  to  cover  both  salary  and  expense. 


At  the  close  of  each  month  the  totals  from  these 
classified  expense  accounts  are  transferred  to  a hook 
which  records  comparative  expenses.  This  book  is  ruled 
like  a trial-balance  sheet,  so  that  the  various  items  are 


EXPENSE  CONTROL 


187 


arranged  in  tables  for  comparison  month  by  month. 
These  monthly  totals  in  turn,  are  classified  by  years  and 
arranged  for  comparison. 

The  sundry  expenses  are  minutely  subdivided  and  in- 
clude the  smallest  items  of  expense ; even  showing  a rec- 
ord of  matches  and  soaps,  and  tickets  purchased  from 
persons  soliciting  for  entertainments.  The  totals  from 
the  Sundry  Expense  book  are,  of  course,  included  in  the 
tabulated  recapitulations  in  the  “Comparative  Expense 
Books.  ’ ’ 

These  books  are  valuable  as  a medium  for  the  method- 
ical scrutiny  of  daily  items.  From  them  you  can  watch 
the  outgo  in  all  its  details  and  ramifications.  Expense 
may  be  compared  to  a group  of  water-courses  draining 
some  common  region.  The  streams  flow  in  every  direc- 
tion, all  of  them  centering  at  the  same  source.  Some  of 
them  are  only  rivulets,  some  creeks,  some  rivers,  but  all 
drawing  away  the  same  waters.  To  get  a birds-eye  view 
of  this  group  of  streams,  you  must  mount  an  eminence. 
To  attempt  to  follow  each  separately  would  be  a long 
and  tedious  task,  but  from  an  elevation  you  may  study 
the  course  of  every  one. 

So,  too,  you  can  scan  the  expense  streams  from  the 
eminence  of  your  own  desk  if  you  have  the  proper  sys- 
tem. No  rivulet  will  be  too  small  to  see.  Each  entry 
will  be  itemized  under  its  proper  classification.  In  run- 
ning through  the  accounts  every  morning  you  can  place 
your  finger  on  items  that  appear  too  large,  or  uncalled 
for,  or  which  need  explanation.  You  can  point  out  the 
spots  where  expense  streams  must  be  dammed. 

Expense  is  best  controlled  by  centralizing  its  super- 
vision. Subject  all  its  ramifications  to  some  system  that 
reduces  them  to  this  daily  scrutiny  at  your  desk.  And, 
necessarily,  condense  all  the  items  as  far  as  is  compatible 


188 


GRAPHS  AND  STATISTICS 


with  this  minute  classification.  Have  your  expense  rec- 
ords permanent,  in  the  form  of  books,  for  the  detached 
report  sheet  is  bulky  and  inconvenient  to  handle.  The 
most  efficient  record  lies  in  your  private  account  books. 

REDUCTION  of  expenses  to  a percentage  basis  puts 
them  all  on  the  same  level — then  the  wastes  and  dis- 
crepancies appear  at  once  in  glaring  outlines. 

But  the  classified  and  comparative  books  named  make 
up  only  one  step  in  the  controlling  of  expense.  They 
give  you  a daily,  monthly  and  yearly  scrutiny,  but  their 
statistical  value  is  as  yet  imperfect.  Their  figures  repre- 
sent money,  not  percentages.  In  keeping  the  various 
items  of  expense  at  their  proper  ratio,  percentage  sta- 
tistics play  an  important  role.  The  more  detailed  these 
statistical  tables  are,  the  more  efficient  will  be  your  su- 
pervision of  outgo.  The  deadly  parallel  is  used  here, 
not  to  show  similarities,  but  to  reveal  incongruities,  dis- 
similarities. Expense,  as  a rule,  is  governed  by  fixed  or 
progressive  percentages.  YvTien  there  are  abrupt  varia- 
tions from  this  rule,  they  must  be  shown  up  conspicu- 
ously on  the  records.  Nothing  does  this  so  graphically 
as  percentage  tables. 

For  this  purpose  we  keep  a number  of  books,  made 
up  of  tabulated  percentages,  monthly  and  yearly. 

The  first  gives  the  percentage  of  expense  to  sales.  The 
page  is  ruled  at  the  left  for  entering  the  various  classifi- 
cations, one  under  another ; at  the  right  are  perpendicu- 
lar columns  for  the  percentages.  Thus  the  table  shows 
Office  Expense,  Salaries,  Sundry  Salaries,  Cartage,  and 
the  like.  If,  for  example,  you  desire  to  know  the  ratio 
of  office  expense  to  sales,  turn  to  the  index,  find  the 
table,  and  run  your  finger  along  the  designated  cross- 
line;  you  can  see  at  a glance  the  percentages  for  each 


EXPENSE  CONTROL 


189 


month  in  the  year.  Turning  to  the  yearly  table,  you  can 
compare  the  years  in  the  same  way  as  the  months. 

Going  down  a line,  you  follow  the  ratio  that  salaries 
bear  to  sales,  and  so  on  through  all  the  subdivisions  per- 
taining to  the  expense  of  selling. 

The  advantage  of  this  record  is  manifest.  All  these 
items  bear  a natural  relationship  to  the  chief  classifica- 
tion under  which  they  are  grouped — Sales.  For  ex- 
ample, once  you  have  determined  approximately  the  per- 
centage office  expense  ought  to  bear  to  sales,  you  have 
the  key  to  the  subsequent  controlling  of  this  item.  The 
ratio  may  have  to  be  increased  gradually  because  of  in- 
creased costs,  but  if  you  do  increase  it  you  do  so  intelli- 
gently. You  know  exactly  why.  You  do  not  waste 
brain  force  wondering  why  your  selling  expense  is  so  big 
or  where  you  ought  to  cut.  The  percentage  table  shows 
you  just  what  department  is  beyond  its  normal  ratio. 

The  second  comparative  percentage  book  shows  the 
ratio  of  expense  to  expense.  In  other  words,  it  shows 
the  ratio  each  item  of  expense  bears  to  the  total  ex- 
pense. 

This  book  is  ruled  the  same  as  the  other,  following 
out  the  monthly  and  yearly  percentages  in  the  same 
manner.  For  instance,  suppose  you  want  to  learn  what 
relation  your  teaming  bears  to  the  total  cost  of  conduct- 
ing your  business.  You  wish  to  establish  some  rule  for 
controlling  this  item.  The  percentage  rule  is  an  excel- 
lent guide.  Month  by  month,  year  by  year,  tabulate 
your  teaming  expense  in  ratios.  Without  such  a table, 
you  must  go  it  blind.  There  will  be  wastes  you  can  not 
detect. 

In  this  book  it  is  scarcely  necessary  to  tabulate  with 
extreme  minuteness.  The  minor  classifications  detailed 
in  the  more  general  expense  books  may  be  omitted  and 


190 


GRAPHS  AND  STATISTICS 


only  the  larger  classifications  tabulated.  But  this  book 
affords  opportunity  to  keep  track  of  expense  percentages 
in  any  general  or  special  item  the  executive  desires. 
Every  business  has  its  particular  departments  or  phases 
especially  in  need  of  watching. 

The  third  comparative  percentage  book  gives  the  ratio 
of  expense  to  gross  merchandise  profits.  The  method  of 
tabulation  is  the  same  as  already  described.  Here,  too, 
the  classifications  need  not  be  so  detailed  as  in  the  daily 
and  monthly  itemized  record  of  expenses. 

COMPARATIVE  statistics  books  may  be  multiplied 
as  far  as  necessary , giving  the  important  facts  about 
every  big  and  little  phase  of  the  business . 

This  book  gives  you  a succinct  survey  of  the  bearing 
the  expense  account  has  upon  the  business  as  a whole.  It 
measures  the  difference  between  income  and  outgo,  and 
shows  in  percentages  the  results  of  the  firm’s  enterprises. 
If  the  ratios  shown  are  too  large  to  harmonize  with  the 
amount  of  capital  invested,  the  various  classifications 
may  be  analyzed  and  traced  back  in  ever-increasing  de- 
tail to  the  tabulated  dollars  and  cents  tables  and  ac- 
counts. ‘ 

In  addition  to  these  important  books  of  statistics,  we 
have  others  of  local  value.  Thus,  there  is  a book  devoted* 
to  electric  light  and  elevator  meters.  It  is  ruled  for  sta- 
tistical tables.  Each  meter  has  a column  running  the 
vertical  way  of  the  page,  and  in  each  cross-space  is 
entered  the  sum  charged  against  that  meter  for  a given 
month,  in  dollars  and  cents.  A full  column  represents 
the  total  paid  on  a given  meter  for  a year.  So,  passing 
your  finger  from  left  to  right  across  the  page,  you  can 
follow  the  history  of  any  elevator  by  its  meter,  month  by 
month,  checking  its  performance. 


EXPENSE  CONTROL 


191 


.Another  book  useful  to  firms  having  teams  is  that  con- 
taining statistics  of  the  stable.  It  is  ruled  to  give  the 
quantities  of  feed  consumed  and  the  cost.  Take  oats,  for 
example.  The  table  shows  the  number  of  bushels  used 
daily  and  monthly,  the  average  daily  cost,  and  the  aver- 
age cost  per  bushel.  The  hay  table  shows  the  same  sta- 
tistics in  tons.  So,  too,  are  tabulated  the  daily  number 
of  horses  consuming  this  feed,  and  the  daily  average  of 
horses.  If  you  watch  this  stable  book  you  will  quickly 
detect  and  control  non-productive  outgo.  Once  you 
know  the  proper  average  quantity  of  feed  required  per 
horse,  any  over-feeding,  under-feeding,  or  waste,  must 
be  discovered. 

This  system  of  recording  and  watching  expense  may 
be  extended  indefinitely  and  made  as  general  or  specific 
as  the  needs  of  your  business  require.  The  books  and 
tables  described  may  be  reduced  to  three  or  multiplied 
into  a score,  and  each  will  reveal  in  undeniable  figures 
the  trend  of  some  department  or  classification  of  your 
business, 


£$3 


]yf  ANUFACTURERS  are  showing  renewed  interest  in 
^ 1 production  costs . For  here  is  something  every  manager 
can  control . Market  and  selling  conditions  may  he  outside 
his  definite  control . He  can  buy  right — sometimes . He  can 
put  over  a special  selling  campaign . But  more  and  more  he 
must  study  production  costs  and  know  that  they  are  exactly 
right . 


— J.  Eddy  Chace 


XX 


MAKING  CLERICAL  WORK 
AUTOMATIC 


By  H.  M.  Wood 

Of  the  Lodge  & Shipley  Machine  Tool  Company 


AN  executive  in  our  plant  need  not  wait  two  weeks 
to  know  the  cost  of  a job  that  was  done  the  day 
before.  If,  for  example,  he  wishes  to  know  the  cost  of 
the  one  hundred  headstocks  used  in  one  lot  of  eighteen- 
inch  lathes,  all  the  cost  department  has  to  do  is  assemble 
a series  of  cost  cards,  find  the  assembly  group  number 
corresponding  to  this  style  of  headstock  and  run  these 
cards  through  a machine.  Records  which,  under  some 
conditions,  might  take  two  weeks  to  assemble  because  of 
the  clerical  work  necessary  in  posting  and  compiling  the 
data,  can  be  turned  out  in  a day  in  this  way. 

Primarily  this  speed  in  handling  cost  figures  is  made 
possible  by  the  use  of  an  assorting  machine  similar  in 
general  construction  to  the  machines  used  by  the  United 
States  Census  Bureau.  While  this  machine  does  much 
of  the  laborious  posting  and  calculating  which  otherwise 
would  have  to  be  done  by  accountants,  the  method  of 
handling  labor  and  material  records  in  the  factory  is  an 
essential  element  in  the  success  of  the  system.  In  the 
first  place,  in  order  that  records  of  work  and  costs  may 
be  assembled  in  compact  form,  the  plant  as  a whole  is 
organized  on  the  numerical  basis.  Departments,  men, 
machines,  operations  and  materials  are  all  numbered. 
All  the  work  and  the  operations  are  standardized  and 


AUTOMATIC  COST  FINDING 


193 


identifying  numbers  given  to  each.  There  are  numbers 
for  standard  parts,  for  repairs,  tools,  new  parts,  and  so 
on.  Consequently,  when  a job  number  is  given  to  an 
order  that  number  in  itself  is  a key  which  identifies  the 
job  in  several  different  ways. 

MACHINES  and  methods  that  simplify  the  analysis 
of  cost  figures  in  the  office  and  bring  the  big  facts 
quickly  and  accurately  to  the  executive’s  desk . 

How  this  system  of  numerical  identification  is  worked 
out  and  how  it  simplifies  the  handling  of  clerical  detail 
can  be  well  illustrated  by  analyzing  the  method  of  find- 
ing the  cost  of  one  part  of  one  lot  of  eighteen-inch  lathes. 
On  this  lot  it  is,  of  course,  necessary  to  keep  distinct 
records  of  labor  and  material ; to  know  how  much  time 
each  man  spends  on  each  operation  ; what  machine  he 
uses.  This  part  headstock  of  the  eighteen-inch  lathe  be- 
longs to  the  assembly  part  known  as  a group  by  the  num- 
ber 55.  The  part  has  a piece  number  1,100  which  desig- 
nates the  main  headstock  casting  and  it  has  the  shop  job 
number,  14,450  which  keys  it  as  belonging  to  a lot  of  one 
hundred  eighteen-inch  lathes.  The  material  and  time 
for  this  number  are  charged  against  the  shop  number 
and  the  piece  number. 

Requisitions  for  material  are  made  upon  the  stock 
department  in  the  usual  way  and  the  record  of  material 
used  is  kept  by  the  stock  keepers  and  forwarded  by 
them  to  the  cost  department. 

The  labor  on  this  part  is  kept  on  a time  sheet  which  is 
filled  out  by  a timekeeper  who  visits  each  machinist 
periodically  and  keeps  track  of  his  time  in  a loose-leaf 
book  with  pages  ruled  like  Form  I. 

As  this  form  shows,  when  these  time  sheets  and  the 
material  sheets  are  turned  in  to  the  cost  department,  the 


194 


GRAPHS  AND  STATISTICS 


data  on  them  is  in  the  form  of  numbers  and  is  really  an 
analysis  of  these  numbers,  each  of  which  identifies  some 
bit  of  cost  information. 

Formerly  the  cost  department  posted  time  from  the 
time  sheets  to  a book  at  the  end  of  the  week  and  classified 
the  results  in  columns  under  individual  headings.  Now 
instead  of  posting,  the  data  from  the  time  book  is  as- 
sembled compactly  on  a card  like  that  shown  in  Form  II. 

All  the  data  pertaining  to  time  keeping  and  to  stock 
keeping  is  assembled  by  punching  small,  round  holes  in 
the  proper  location  on  the  card  shown  in  Form  II  for 
the  time  and  Form  III  for  the  material.  Take  the 
analysis  of  the  time  on  job  number  14,450,  piece  number 
1,100  as  an  example.  The  first  three  columns  show  the 
date  and  all  the  cards  of  the  same  day  are  punched 
simultaneously  by  a gang  punch,  on  that  day.  In  the 
card  shown  (Form  II),  the  figure  3 punched  in  the  first 
column  indicates  the  third  month  of  the  year  which 
itself  is  keyed  by  the  punch  mark  in  the  figure  10'  at  the 
top  of  the  second  column.  The  punch  mark  at  figure  3 
indicates  that  this  operation  was  performed  the  third 
week  in  the  month  and  in  the  third  column  the  figure  14 
(one  punch  for  each  figure)  is  a key  to  the  day  of  the 
month. 

Each  department,  numbered  consecutively,  is  easily 
identified  on  the  form  by  the  punched  marks,  and  the 
two  punched  marks  in  the  fourth  column  indicate  that 
the  work  was  performed  in  department  10,  the  planer 
department.  \ 

The  fifth  column  with  three  punch  marks  shows  that 
the  workman  whose  number  is  222  is  a machinist  to 
whom  the  time  on  this  job  is  to  be  charged. 

In  the  next  main  sub-division  under  the  title  “ Charge’ ’ 
is  punched  the  job  number  14,450,  which  is  a key  to  the 


AUTOMATIC  COST  FINDING 


195 


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FORMS  lt  III  and  IV:  The  time  sheet  at  the  hack  is  filled  out  by  a clerk  who  visits  the  men  at  their  work . The  front  and 
middle  cards  are  the  stock  keeper’s  and  the  “ census 99  records  of  materials  used 


196 


GRAPHS  AND  STATISTICS 


lot  of  one  hundred  eighteen-inch  lathes.  The  punch 
mark  on  the  left  side  of  this  same  column  shows  that  this 
particular  job  is  a standard  part  and  as  such  is  dis- 
tinguished from  repairs,  tools,  and  so  on,  which  are 
designated  by  name  in  this  subdivision  of  the  column 
headed  “charge.” 

The  piece  number  1,100  designates  the  main  headstock 
casting,  and  the  group  number  55  is  the  numerical  way 
of  stating  that  this  particular  lot  of  parts  is  one  belong- 
ing to  the  complete  headstock  number  55.  The  name  of 
the  operator  planing  the  bottom  of  the  headstock,  ex- 
pressed in  arithmetical  terms,  is  134.  The  department 
and  the  part  have  already  been  designated,  and  this 
separate  classification  of  operations  is  necessary  to  show 
the  specific  portion  of  the  casting  which  is  being  planed. 
Similarly,  the  machine  in  the  department  numbered  1234 
means  that  the  work  was  done  on  the  thirty-six-inch 
planer. 

The  columns  for  hours,  indicating  elapsed  time  and 
the  amount  paid,  are  shown  in  the  next  two  columns. 
The  amount  paid  is  the  wage  charge  against  this  particu- 
lar job.  It  is,  of  course,  calculated  in  the  cost  depart- 
ment by  multiplying  the  time  on  the  job  taken  from  the 
time  sheet  (Form  I)  and  multiplied  by  the  man’s  rate. 
The  wage  charge  is  indicated  by  the  punch  marks  in  the 
column  headed  “Amount.” 

In  the  last  column  on  Form  II  the  character  of  the 
work  from  the  accounting  standpoint  is  designated.  The 
abbreviations  in  this  column  refer  to  overhead,  non-pro- 
ductive, productive,  and  so  on.  The  punch  mark  indi- 
cates that  this  work  is  productive  labor. 

Store  room  records  of  material  are  kept  in  just  the 
same  way.  Two  sets  of  cards,  similar  in  design  to  that 
shown  in  Form  III,  are  used  for  keeping  the  material 


AUTOMATIC  COST  FINDING 


197 


records.  Green  cards  are  used  for  material  coming  in 
from  the  foundry  and  pink  cards  for  material  coming  in 
from  the  machine  shop  receiving  office.  The  record  of 
goods  received  from  the  foundry  is  indicated  by  marks 
punched  directly  on  the  card,  just  as  the  time  records 
are  kept. 

A monthly  summary  of  the  totals  of  the  records  of 
both  green  and  pink  cards  is  tabulated  on  a white  card 
marked  store  room  (Form  IV). 

So  in  compact  shape  a vast  amount  of  information  re- 
garding the  details  of  time  and  material  charges  is  avail- 
able. The  next  step  is  to  assemble  and  analyze  these 


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6 6 

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6 6 6 6 

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6 6 16  6 

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777 

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19  9 9 

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9 9 9 

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FORM  II:  Holes  are  punched  in  this  card  by  a machine . They  are 
then  run  through  another  machine  which  assorts  them  so  that  any  desired 
statistics  can  be  secured 


charges.  For  this  work  the  “census-machine”  is  used. 
After  the  cards  have  been  punched  they  are  thrown 
promiscuously  into  a box  with  others  and  when  all  the 
cards  for  the  day  are  prepared  they  are  run  through  the 
assorting  machine  and  distributed  according  to  groups. 

The  assorting  machine  has  pockets  numbered  from  0 
to  9,  thus  corresponding  to  the  figures  in  the  columns  on 
the  cards. 

A scale  on  the  machine  is  graduated  in  such  a way 


198 


GRAPHS  AND  STATISTICS 


that  it  corresponds  exactly  to  the  location  of  the  verti- 
cal columns  on  the  cards.  A brush  is  adjustable  to  any 
position  along  the  scale  and  in  its  different  positions  it 
makes  electrical  contact  with  a small  revolving  shaft. 
To  assort  a group  of  cards  for  any  particular  column, 
it  is  only  necessary  to  set  the  brush  over  that  column  on 
the  scale  and  feed  the  cards  into  the  machine,  which 
automatically  sorts  them  at  the  rate  of  two  hundred  and 
sixty  per  minute. 

ASSORTING  'punched  cards  by  means  of  electric 
tabulation  to  find  any  desired  set  of  statistics  saves 
a large  amount  of  clerical  work  in  getting  costs . 

Take  the  time  cards  on  our  lathe  part  as  a sample.  In 
the  first  place,  the  machine  is  set  for  the  right-hand 
column  and  the  package  of  miscellaneous  cards  is  thus 
separated  into  the  various  classifications  of  labor.  Select- 
ing the  productive  group,  these  cards  are  again  run 
through  the  machine  and  standard  parts  and  labor  parts 
are  separated,  these  two  being  the  only  subdivisions  of 
productive  labor. 

Then  the  time  on  this  particular  lot  of  eighteen-inch 
lathes  will  be  turned  in  on  standard  parts,  and  if  the 
“standard”  subdivisions  of  “productive”  labor  are  run 
through  the  machine  again,  they  may  be  assorted  accord- 
ing to  job  or  “charge”  numbers. 

iThis  takes  a little  longer,  as  the  charge  number  con- 
sists of  five  figures.  For  the  first  time  the  machine  is 
set  to  give  nine  piles  assorted  by  tens  of  thousands.  The 
brush  is  then  set  over  one  notch  to  the  right  on  the  indi- 
cator scale,  and  all  the  numbers  in  the  first  ten  thousand 
are  assorted  into  nine  piles  of  thousands.  By  similar 
successive  set-overs  the  subdividing  is  carried  through 
hundreds,  tens  and  units. 


AUTOMATIC  COST  FINDING 


199 


This  leaves  the  cards  in  numerical  order  according  to 
the  44 Charge”  numbers,  with  all  cards  of  a given 
4 4 Charge  ’ ’ number  together.  The  cards  are  then  placed 
in  files  provided  for  the  purpose,  with  index  cards  separ- 
ating the  different  “Charge”  numbers.  Cards  for 
“Charge”  number  14,450  remain  in  this  file  until  our 
lot  of  eighteen-inch  lathes  is  completed. 

When  this  lot  of  lathes  is  finished  and  the  cards  are 
all  in,  all  of  the  cards  now  filed  under  4 4 Charge  ’ ’ number 
14,450  are  run  through  an  adding  machine.  This  ma- 
chine automatically  foots  up  the  totals  of  hours  and 
wage  costs  for  the  entire  job  directly  from  the  punch 
marks  on  the  cards.  These  totals  from  the  adding  ma- 
chine are  then  “posted”  into  permanent  records,  and  the 
cards  are  replaced  in  their  file  to  await  calls  for  further 
information. 

When  there  is  much  data  to  be  assembled  the  advan- 
tages of  this  system  are  apparent.  For  some  of  the  in- 
formation on  the  cards  there  may  never  be  any  call.  But 
the  cards  are  filed  under  the  4 4 Charge  ’ ’ numbers  and  the 
more  detailed  data  is  not  worked  up  until  something  spe- 
cific is  required.  ^ 

If,  for  example,  the  cost  of  the  one  hundred  head- 
stocks  used  in  eighteen-inch  lathes  is  wanted,  all  that  is 
necessary  to  do  is  to  run  through  the  machine  all  of  the 
4 4 Charge  14,450”  cards  so  as  to  pick  out  4 4 Group  55.” 
Then  add  up  the  amounts  to  get  the  wage  cost. 

On  the  other  hand,  if  you  wish  to  find  how  long  a 
certain  machine  tool  worked  on  this  lot,  assort  all  the 
4 4 Charge  14,450  ” cards  by  the  machine  column  and  add 
the  number  of  hours  on  the  cards  which  assemble  them- 
selves under  the  machine  number  wanted. 

The  assorting  and  adding  machines  effect  a great  sav- 
ing of  labor  in  your  cost  department,  since  you  need 


200 


GRAPHS  AND  STATISTICS 


fewer  and  cheaper  clerks.  There  is  less  chance  for  errors 
because  when  once  the  cards  are  properly  punched,  the 
machines  are  bound  to  do  the  work  correctly.  But  the 
most  important  consideration  of  all  is  the  speed  with 
which  you  get  your  results  ; under  this  system  you  can 
have  the  cost  of  a lot  the  day  following  completion, 
whereas  under  other  methods  it  would  take  a week  or  so 
to  post  the  records  and  compile  the  data. 


A LMOST  every  large  concern  that  started  twenty  years  ago 
^ and  is  successful  today , could  today  duplicate  that  success . 
You  can  he  a Wanamaker , a Marshall  Fields  or  an  Altman, 
if  you  personally  attend  to  your  store,  look  after  your  window 
displays,  watch  your  business  and  study  it  thoroughly . 
You  can  become  successful  just  as  easily  as  these  big  men 
have  done  before . It  depends  upon  how  you  study  your 
business  and  how  much  you  love  your  business . 

— Samuel  Brill 

President,  Brill  Brotheis 


I 


